US & China weaknesses self-inflicted

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.

And today we lead with news China's inability to get out of its rut, and the fast-fading of the American exuberance are the dominating global economic scene-setters.

And this week it will be all about by the US Fed and its Thursday monetary policy review. They face the prospects of higher inflation in the immediate plannable future from the costs of the new tariffs, an expansion that is faltering fast, and probably a wave of job losses. How they assess those conflicts will be keenly followed by financial markets, even if no rate change is expected.

New inflation pressures are also hitting Canada, and they will release CPI data this week, along with retail sales data.

And many other countries will have monetary policy reviews this coming week, including Japan, China, Sweden, Switzerland and the English. Japan will also release inflation data.

And China is about to release retail sales and industrial production data later today along with a look at February house prices.

Over the weekend in China, after the spectacular rise in January loan growth, reported their February levels came in quite low, showing the policy-induced surge could not be maintained. There were only ¥1.01 tln in new loans extended in the month, far below the ¥5.03 tln January level and back to levels it bounced along at for most 2024 months. The February 2024 level was ¥1.45 tln, so this 2025 result is a definite sag since then.

New official energy is going into boosting consumer demand by tackling consumers property losses, that haven't responded so far to prior efforts, and to 'stabilise' their stock markets.

And their foreign direct investment data out for February was very weak again, only ¥114 bln in February, -20.4% lower than the already low ¥143.4 bln in the same month of 2024. And this is off the back of a 2024 which was their lowest FDI inflows in eleven years. For perspective in February 2022 they attracted ¥220 bln in foreign investment, so this 2025 level is about half of that.

Across the Pacific, the widely anticipated American March survey of consumer sentiment from the University of Michigan was out and it fell much more than expected. In fact it recorded its lowest level since November 2022. It is now down -27% from a year ago.

One key reason Americans are so glum (apart from the chaos of policy gyrations), they fear a sharp return of inflation. Year-ahead inflation expectations jumped up from 4.3% in February, already a high level, to 4.9% this month, also the highest reading since November 2022 and marking three consecutive months of unusually large increases. Their new long term inflation expectations of 3.9% have now hit a 32 year high.

There is probably much more to come. The US price of timber is already rising and now at its highest level two years. Industrial commodities like tin are also tracking much higher. We have previously noted the cost of eggs which even after a recent pullback are still almost double what they were a year ago. There will elevated interest in the AtlantaFed's GDPNow tracking when it is updated tomorrow.

The UST 10yr yield is now at 4.32%, up +1 bp from Saturday at this time. 

The price of gold will start today at just on US$2985/oz and up another net +US$2 from Saturday. Over the weekend it briefly spiked to US$3000 but then retraced sharply before settling at the current level.

Oil prices are little-changed from Saturday at just over US$67/bbl in the US and the international Brent price is at just on US$70.50/bbl.

The Kiwi dollar is now at 57.5 USc and unchanged from Saturday. Against the Aussie however we are also unchanged at 90.9 AUc. Against the euro we are holding as well at at 52.8 euro cents. That all means our TWI-5 starts today just under 66.8, and also virtually unchanged.

The bitcoin price starts today at US$83,632 and down -0.7% from this time Saturday. Volatility over the past 24 hours has again been modest at +/- 1.5%.

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.