China targets tax on offshore investments by their wealthy

Kia ora,

Welcome to Wednesday’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.

Today we lead with news China is dusting off some unused regulations to shore up its deteriorating financial situation.

But first, at the overnight dairy auction, prices were little-changed, down -0.2% in USD terms but up +2.8% in NZD terms. The dominant WMP price was essentially unchanged, but the foodservice commodities like SMP were down -1.8%, mozzarella down -8.2% and butter down -0.3%. Going the other way, cheddar cheese was up +4.2% and the only bright spot. No farm gate payout forecasts will be changed because of this event.

Last week's US retail impulse survey shows a strong rise of +5.6% from a year ago. And this is not only well ahead of inflation, it is built on a strong +4.6% gain in the same week a year ago.

Meanwhile, American consumer inflation expectations in September were little-changed at 3% for the year ahead. In fact consumer labour market and household finance expectations are largely stable too. Given it is an election period with its share of weirdness, perhaps this is not quite the result you might have expected.

But it is not all good. Business activity contracted modestly in New York State, according to firms responding to the October 2024 Empire State Manufacturing Survey. After climbing into positive territory last month, the headline general business conditions index retreated rather sharply. New order levels fell, and shipments edged lower.

Canada's CPI inflation rate fell to 1.6% in September, from 2.0% in August. It is now at its lowest level since February 2021. Lower fuel costs drove the retreat. It seems more likely now that Canada's central bank will cut its 4.25% policy rate when it next meets on Thursday, October 24 (NZT). Maybe outsized cuts are coming there.

Japan industrial production is becoming quite volatile with big jumps followed by bit dips. The August data revealed a big dip, year-on-year. It is hard to know what to make of this new volatility. But overall it represents a sag.

In a bit of a surprise, EU industrial production jumped in August and by enough to take the year-on-year level above August 2023, a rare event. It was the best month-on-month jump in more than a year. The European service sector is doing better and enabling local factories with more orders.

In China, Bloomberg is reporting that tax authorities there are cracking down on offshore income earned by their wealthy. It has begun enforcing a long-overlooked tax on overseas investment gains. Some wealthy individuals in major Chinese cities were told in recent months to conduct self-assessments or summoned by tax authorities for meetings to evaluate potential payments, including those in arrears from past years, they reported. The move underscores growing urgency in Beijing to expand its sources of revenue as land sales tumble and growth slows.

And we probably should note that those grain commodity price falls we noted yesterday have gathered steam today.

The UST 10yr yield is now at just on 4.04% and down -8 bps from yesterday. 

The price of gold will start today at US$2661/oz and up +US$14 from this time yesterday.

Oil prices are down a sharpish -US$3.50 at just on US$70.50/bbl in the US while the international Brent price is now just under US$74.50/bbl.

The Kiwi dollar starts today at 60.8 USc and down -10 bps from this time yesterday. Against the Aussie we are little-changed at 90.7 AUc. Against the euro we are also little-changed at 55.8 euro cents. That all means our TWI-5 starts today now just over 69.2, and marginally lower from yesterday at this time.

The bitcoin price starts today at US$67,003 and up another +1.9% from this time yesterday. Volatility over the past 24 hours has been moderate at under +/- 2.4%.

Join us at 10:45am today when we will have full coverage of the Q3-2024 New Zealand CPI result, a crucial factor in setting monetary policy.

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.