China market fever breaks as Beijing stimulus disappoints

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 has not announced the new stimulus that investors were expecting, rather just re-hashing existing measures. Equity and commodity markets reacted negatively to the disappointment.

But first, the American retail Redbook index rose marginally last week to be +5.4% above year-ago levels, and well ahead of inflation.

The US SME optimism index rose slightly in September even though uncertainty levels remained high as the US election gets closer, less than a month away now.

Meanwhile the RCM/TIPP optimism index for investors rose to a 19 month high. But again, the change was small.

And the US trade deficit in both goods and services fell in August from July in a better-than-expected result driven by stronger exports that were +5.2% higher than a year ago.

There was yet another very well supported US Treasury bond auction overnight, this one for their 3 year Note. It resulted in a 3.82% median yield, but up sharply from the 3.40% median yield at the prior equivalent event a month ago

Canada also posted its August trade result and its deficit came in a bit more than expected, mainly on a -1% fall in exports

In China, the closely anticipated National Development and Reform Commission (NDRC) briefing was a damp squib, essentially not announcing anything new in the way of economic support for their economy. All they did was front-load existing measures. A rally in Chinese stocks on their return from the week-long holiday fizzled quickly as traders questioned Beijing’s resolve to add more effective stimulus.

After rising strongly in anticipation over the past week or so, the iron ore price sank sharply after this briefing.

And China said it will impose tariffs on European bandy in retaliation for EU tariffs on EVs.

German industrial production rose in August from July and by more than expected to be 'only' -2.7% lower than a year ago, it least year-on-year decline in a year and a big improvement from July.

In Australia, business sentiment became less negative in September. The NAB business confidence index 'rose' to -2 from August’s revised -5, amid notable improvements in retail and recreation & personal services.

And the consumer mood is improving too. Australia's Westpac-Melbourne Institute consumer sentiment jumped to a 2½ year high in October, a sharp turnaround from the fall in September. This followed interest rate cuts in other countries and more signs that inflation is easing locally.

We should also note that overnight Pulse dairy auction for just WMP and SMP came in less robust than the minor gains expected. The dips were small and most for SMP, but essentially both products are retaining their recent higher levels even if they are slipping slightly.

On the weather front, Hurricane Milton isn't easing, still a category 5 event and heading straight for Tampa, Florida. Urgent evacuation orders are in place. Expected landfall is in about 24 hours. Even if it does ease somewhat, it will be a powerful event.

The UST 10yr yield is now at just on 4.03% and up +1 bp from yesterday. 

The price of gold will start today at US$2611/oz and down -US$33 from this time yesterday.

Oil prices are sharply lower, down -US$4 at just on US$73/bbl in the US while the international Brent price is now just on US$76.50/bbl.

The Kiwi dollar starts today at 61.2 USc and unchanged from this time yesterday. Against the Aussie we are up +20 bps at 90.8 AUc. Against the euro we are still at 55.8 euro cents. That all means our TWI-5 starts today still just on 69.4, and up a minor +10 bps from yesterday at this time.

The bitcoin price starts today at US$62,417 and down -1.9% from this time yesterday. Volatility over the past 24 hours has remained modest at just on +/- 1.6%.

Join us at 2pm today when we will have full coverage of today's Monetary Policy Review and the expected rate cut to the OCR.

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.