China shows strengths & weaknesses; the US its strengths

Kia ora,

Welcome to Monday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

And today we have a quick news wrap-up so you can get back to your 'time-off'.

In the week ahead, we will be on the lookout for the Barfoot December sales result. It in fact may come later this morning if last year's schedule is any indication.

In the United States this week, the main focus will be on December inflation rates, followed by exports, producer prices, and speeches by Fed officials. Also, Switzerland, Mexico, Brazil, Australia and India will unveil their CPI figures.

It will be a busy week in China who will release consumer and producer inflation updates, export data, and new yuan lending data. Germany will release factory orders, industrial production, and exports data too. And a range of countries will update their jobless rates for December, including the Euro Area, Italy, Turkey, South Korea, and the Philippines.

In China, they released their December foreign exchange reserve data over the weekend and it showed a big jump, rising +US$66 bln to US$3.24 tln. This was more than expected, and is now at its highest level since December 2021 and the second highest since December 2015. Much of this change however was because of exchange rate changes rather than inflows. The yuan rose +0.5% against the US dollar, while the dollar fell by -2% against a basket of other major currencies. At the same time, China's gold reserves increased by +US$2.5 bln to just over $148 bln.

On Friday, a Beijing court placed Zhongzhi Enterprise Group (ZEG) into bankruptcy. It has been a major player in their US$3 tln shadow banking sector and has lent billions to real estate firms. Zhongzhi has US$64 bln in debt and now far more than its fast-depreciating property loan base. It will not end well for its managers (some of whom have skipped town).

And they may be joined by some carmakers in 2024. Bloomberg is reporting that only four of the 13 brands that have disclosed annual sales figures accomplished their 2023 targets, with many missing by wide margins. A consolidation is due, but for those that aren't picked up, it could be a messy end. Overall, momentum loss is affecting one of China's big three economic regions.

In Japan, consumer sentiment rose in December and to its best level in two years.

Singapore retail sales made some sort of recovery in November after falling in October. They are now +2.5% higher than in November 2022.

In the US their giant labour market has impressed with more job gains than expected. The headline expansion was +216,000 when a gain of about +170,000 was anticipated. This is the employer payroll data. They also survey households and that reported a fall, something unusual in the November to December period. For the full year, payrolls rose +2.7 mln, whereas the household survey reported a gain in employment of +1.9 mln for the year. It seems workers are shifting out of self-employment on to employer payrolls.

Average weekly earnings rose +3.8% for the year in this survey, enough to best inflation but not by much. But the pace slowed in December from November, so this is one to watch.

Meanwhile, the ISM services PMI delivered only a minor expansion in December, although new order growth was good. Prices rose slower, a +0.9-percentage point decrease from the November. But that wasn't as fast a decline as the ISM factory survey showed, a -4.7 percentage point decrease.

But overall American factory order growth recorded its best rise in three years, a +2.6% expansion pace in November from October, and +3.3% year-on-year.

This weekend data probably pushes back when the US Fed will feel a need to start trimming rates. The current sanguine situation may well have them keep current levels for some time. But this is not the scenario that bond markets have assumed.

Canada disappointed in its labour market change in December, with virtually no change from November when a +13,500 rise was expected and after a +24,500 rise in November. Worse, full-time employment fell -24,000 jobs and part-time employment rose +24,000 jobs. They will be quite disappointed in that.

European inflation seems sticky above levels they want to see, according to the December data. While lower energy costs are certainly helping, food costs are not. Their +6.9% pa rise in food costs and -11.9% fall in energy costs balanced out to a +2.9% rise in overall inflation in December, up from +2.4% in November. In Germany, inflation is running at 3.7%.

A sharper than expected pullback in November German retail sales won't hep either as those price pressure mount.

The UST 10yr yield starts today at 4.05% and up another +2 bps from this time Saturday. 

The price of gold will start today up +US$4/oz at just on US$2045/oz.

Oil prices are +50 USc higher at just under US$74/bbl in the US. The international Brent price is still just over US$78.50/bbl.

The Kiwi dollar starts today at 62.4 USc and unchanged from Saturday. Against the Aussie we are holding higher at 93.1 AUc. Against the euro we are firmer at 57.1 euro cents. That all means our TWI-5 starts today just on 70.8 and little-changed from where we left it Saturday.

The bitcoin price starts today higher, rising to US$43,939 and a gain of +1.2% from this time Saturday. Volatility over the past 24 hours has been low at just over +/- 0.8%.

You can find links to the articles mentioned today in our show notes.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again tomorrow.