China lines up massive fiscal bazooka

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 the fiscal bazooka is reportedly in place in China. And it is bigger than expected.

But first, US retail sales remain strong. The Redbook index rose +5.6% last week, its biggest gain since early September, and better than the +5.3% in the same week last year.

The number of job openings in the US fell by -418,000 to 7.4 mln in September from a downwardly revised 7.9 million in August and below market expectations of just on 8 mln. It is the lowest level since January 2021, indicating their labour market is cooling. Quits fell to levels last seen four years ago. Just how fast this labour market cooling is going will be known on Saturday NZT when we get the US non-farm, payroll for October. That is expected to show a +115,000 gain. It might be better than that.

The US Conference Board consumer sentiment index bounced back in October, confirming the similar University of Michigan survey earlier in the month. This wasn't expected however. Also surprising was the rise in future expectations. Consumers’ assessments of current business conditions turned positive. Views on the current availability of jobs rebounded after several months of weakness, potentially reflecting better labour market data in the month.

And here's another positive signal. The Dallas Fed services survey rose in October after being negative in the past, the first positive reading after being negative in the past 30 months. Ahead, firms there are optimistic, even if election uncertainty shows up in this survey.

The US merchandise trade deficit widened sharply in October to -US$108 bln, the widest since the disruptions around Russia's Ukraine invasion onslaught. As a proportion of US GDP, it isn't overly significant. This time, it is higher demand for consumer goods driving imports.

There was another US Treasury bond auction earlier today, this one for their seven year bond, again very well supported. But the yield rose to 4.17%, up sharply from 3.61% at the prior equivalent event a month ago.

Reuters is reporting that China is considering issuing a massive ¥10 tln (NZ$2.3 tln) in extra debt in the next few years to revive its fragile economy. This fiscal package is expected to be further bolstered if Trump wins the American election, they say. This is far more money printing that was originally expected.

In Singapore things aren't great. Their PPI plunged -7.1% year-on-year in September, following -3.4% decline in the previous month. This was the steepest drop since August 2023.

In Germany, their GfK Consumer Climate Indicator rose to a much less negative level in October. It was the highest reading since April 2022, with sentiment improving for the second month and exceeding market expectations. Income expectations strengthened and consumer propensity to buy reached its highest level in nearly three years.

And the EU is pressing ahead with a sharp tariff rise on Chinese EV's to counter state subsidies.

The UST 10yr yield is now at just on 4.29% and unchanged today. 

The price of gold will start today at US$2767/oz and up +US$24 from yesterday.

Oil prices are little-changed at just under US$67.50/bbl in the US while the international Brent price is down to under US$71.50/bbl. That there is essentially no-change is impressive because the US is buying to restock its strategic reserves.

The Kiwi dollar starts today at 59.6 USc and down -20 bps from this time yesterday. Against the Aussie we are up +10 bps at 90.9 AUc. Against the euro we are down -10 bps at 55.2 euro cents. That all means our TWI-5 starts today at just on 68.7, and down -10 bps from yesterday at this time.

The bitcoin price starts today at US$72,595 and up a sharp +5.5% from this time yesterday. Volatility over the past 24 hours has been high at just on +/- 3.1%.

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.