Banking stress rises in China and the EU

Kia ora,

Welcome to Thursday’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 both China and the EU seem to be facing banking & debt pressures, different of course, but each challenging in its own way.

But first in the US, mortgage applications edged slightly higher last week from the week before to be -30% lower that at the end of September and about the same weak level as a year ago. Rising mortgage interest rates are holding them back with the latest rise to 6.90% the fourth week in a row and the highest since early July. Trump and market expectations that the new Administration policies will be inflationary, is getting the blame for the higher interest rates.

Yesterday we noted the bullish outlook for Walmart, as part of stronger American retail activity. But today we also need to note the downbeat assessments from another major retailer, Target.

After the unexpected September dip, Japanese exports rose again in October even if the rise of +3.1% from a year ago was less than the rises they had in 2024 to August. Imports rose too, but even more modestly (+0.4%).

Taiwanese export orders remain very buoyant, up +4.9% in October from a year ago and a rising pace. The ris was mainly driven by increased export orders for electronic products.

The Chinese central bank left its November Loan Prime Rates unchanged at the new lower October levels of 3.10% for the one year LPR, and 3.60% for the five year LPR.

And chickens are coming home to roost for Chinese banks that went along with emergency lending during the pandemic. A government-encouraged surge in lending designed to be a lifeline for small businesses during the pandemic has started to worry their banks, as misappropriation has caused the loans to go bad at an increasing rate due in part to China’s stubborn real estate slump. The official response to the problem? ease back on lending standards.

The Indonesian central bank reviewed its policy rate yesterday and left it unchanged at 6%, as expected. Although they trimmed -25 bps in mid-September, they haven't really started their easing cycle yet. Inflation is running at a very low +1.7% pa, and within their policy target band so they must be close. But a big factor for them in currency stability and a high real interest rate is keeping the rupiah from depreciating at a faster rate. Global tensions, both trade and geopolitical tensions, are the main factors here.

In its latest financial stability review the ECB is warning that the combination of low growth and high debt is about to play out there with some severe economic stress.

In Australia, employers paid more than AU$103.7 bln in wages and salaries in the September month, up +6.3% from a year ago, and the first time it has exceeded AU$100 bln an any month. It part of a longer trend and is up +14.1% from September 2022 levels.

The UST 10yr yield is now at just on 4.41% and up +2 bps from yesterday at this time.

The price of gold will start today at US$2649/oz and up another +US$26 from this time yesterday.

Oil prices are little-changed, still just over US$69/bbl in the US while the international Brent price is still just over US$73/bbl.

The Kiwi dollar starts today at 58.7 USc and back down -30 bps from this time yesterday. Against the Aussie we are -10 bps lower at 90.4 AUc. Against the euro we unchanged at 55.8 euro cents. That all means our TWI-5 starts today at just over 68.5, and down -10 bps from yesterday.

The bitcoin price starts today at US$93,816 and up +1.6% from this time yesterday. Volatility over the past 24 hours has again been modest at +/- 1.9%.

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.