Q4 starts with the US & Japan up, China lagging

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.

Today we lead all eyes are on some well-signaled and massive fiscal stimulus due for release in China.

When it is announced, it will overshadow everything else. But this week will also feature a wide range of other economic data released. Top of the list will be September's PMI data from China, the US and the EU among others, Japan will chime in with its industrial production and retail sales data, The EU will also be releasing inflation data, as will South Korea. And the US will also have more labour market updates, and end the week with its key non-farm payrolls report. In Australia, it will be about building consents and retail trade.

Locally, it will all be about the September housing market reports, plus the Wednesday full dairy auction. But don't forget the following week, when the RBNZ will be releasing its OCR decision, so that will dominate this week's background outlook.

We ended last week with some eye-catching optimism sweeping over Chinese stock markets after unprecedented money-printing fiscal stimulus signaling there.

That came as their central bank some significant monetary policy changes. On Friday they cut the seven-day reverse repurchase rate by 20 bps to 1.5%. They also cut the reserve requirement ratio (RRR) by 50 bps, the second reduction this year, bringing the weighted average RRR for financial institutions to around 6.6% after the cut.

They clearly need it. Construction firms are failing at a much faster rate now.

The Hong Kong and Shanghai equity markets may be roaring, in anticipation of the coming stimulus. But Chinese industrial profits are weak. For the eight months to August, they are a touch less than for the same period last year. For August alone they were -23% lower than the same month in 2023.

In Japan, they are about to get a new prime minister, a self-acknowledged policy wonk, and someone who has been on the outer of the main political establishment for years. He will now be at the center. Shigeru Ishiba is set to make the economy his top priority, signaling plans to lighten the burden of rising prices. Markets are expected to react when they open later today.

In Taiwan, consumer sentiment rose in September to its highest level since March 2020. 

In the US PCE inflation rose at an annualised rate of +2.2% in August, a confirmation that inflation's impulse is back under control. That is its tamest rise since February 2021.

American disposable personal income was up +3.1% in August from the same month a year ago, personal consumption expenditure was up +2.9% on the same basis.

The final September reading of the University of Michigan consumer sentiment survey was released over the weekend and it was revised up from the flash result. The main reason for the increase was higher confidence in the 'present conditions' part of the survey. This survey is now at a five month high.

US wholesale inventories slipped in August from July, but were up less than +1% from a year ago. It was similar for their merchandise trade deficit; down in August from July but up from a year ago. We have made the point before, but the size of these deficits is minor compared to their overall economic activity.

Nothing in these second-tier data releases alters the expanding track of the giant American economy.

EU sentiment is broadly stable in September. Firmer consumer sentiment offsets a slight weakening in business sentiment in the month.

In Australia, they issued an unusual warning late last week: electricity supply from solar rooftops was destabilising their distribution networks because of oversupply. The immediate problem is in Victoria but may affect South Australia as well. The households in those regions will likely be paid nothing for supply.

Separately, we should perhaps keep an eye on the butter price, At auction it has been basically stable for most of the year.at about US$6500/tonne. But the EU butter price has risen to US$7,200/tonne since July. Either the GDT price will shift up strongly, or the EU price will fall sharply. It might be the latter because we saw it fall -5% in the last few days of last week.

The UST 10yr yield is now at just on 3.75% and down -1 bp from Saturday. 

The price of gold will start today at US$2658/oz and up +US$15 from Saturday and back up nearer it all-time high.

Oil prices are h+50 USc firmer at just over US$668/bbl in the US while the international Brent price is now just on US$72/bbl.

The Kiwi dollar starts today at 63.4 USc and down -10 bps from this time Saturday, up more than +1c from this time last week. Against the Aussie we are little-changed at 91.9 AUc. Against the euro we have slipped -10 bps to 56.8 euro cents. That all means our TWI-5 starts today at just under 70.6, and down -15 bps from Saturday.

The bitcoin price starts today at US$65,683 and down -0.3% from this time Saturday. Volatility over the past 24 hours has been very low at just on +/- 0.4%.

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.