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 we are ending the year with mostly a strong international economy, but worries are growing about prospects for 2025. If both China and the US turn down together, then all bets are off.
But right now, it's going to a relatively quiet week ahead as you would expect with major holidays in some of the largest financial markets. But we will get data from Singapore (CPI), Thailand (exports), Taiwan (retail sales and industrial production), China (industrial profits and their MLF interest rate), Canada (PPI), and the US (durable goods orders, new home sales, jobless claims and some regional factory surveys). So enough to keep an eye on while we relax. Nothing locally of course except the November data dump from the RBNZ tomorrow.
In the US, there was a last-minute avoidance of their shutdown as conservative Republicans were not prepared to give the incoming President the blank cheque of a suspension of their debt limit. Trump lost that one by quite a wide margin, so it may not be plain-sailing for the Trump/Musk presidency.
Meanwhile, the widely-watched US PCE measure of inflation came in at 2.4% in November, up a tick and to its highest since July. Core PCE inflation stayed even higher at 2.8%. But these results were actually a tick less than expected. The 2.8% inflation level is what the University of Michigan consumer survey also reported.
American personal disposable income rose +2.6% from a year ago, a slight undershoot. But personal spending remained strong, up +2.9% and similar to the gains over the past six months. Personal saving as a percent of disposable income rose marginally to 4.4% from the prior month and ending the longish decline from the start of the year when it ran at 5.5% of personal disposable income. The 4.4% level is where it ran for most of 2023.
Across the Pacific, Taiwanese export orders stayed elevated, up +3.3% from the same month a year ago which itself was elevated.
China reviewed its loan prime rates on Friday and kept them unchanged - at record lows. It's MLF rate will be announced this coming week.
In China, there have been recent reports of officials calling in bond traders to lecture them about 'responsible trading' - and the consequences for not. Chinese bond yields had fallen to record lows, as readers here who tracked our monitoring of the Chinese 10yr yield below will know. But today, the fear of losing money is winning out over the fear of officialdom's wrath.
China’s one-year bond yields broke below levels last seen in the GFC to the lowest since 2003, driven by bets on aggressive policy easing and demand for haven assets. The yield on one-year government debt plunged 17 bps yesterday to just 0.85%. The ten year is down to 1.69%. While it might be too harsh to call it 'panic mode' there is certainly a hard edge here, in fear of where the Chinese economy is headed.
Japan reported November CPI inflation, and that rose again, now at 2.9%, with the widely-watched core inflation rate at 2.8%.
Japan also said its population fell to just under 124 mln, a fall of -325,000 in a year, and -3.1 mln in a decade. Now 29.3% of that population is 65 year and older, with only 11.1% under 15 years. In China, which is also thought of as having a similar demographic problem, those spread details are 14.3% over 65 years and 16.8% under 15 years.
Following the recent +200 bps out-of-cycle interest rate rise in Russia and the central bank guidance then, they were expected to raise their policy rate by another +200 bps again overnight to 23%. But they didn't. Apparently the Kremlin isn't keen on the independence of the Russian central bank governor any more.
And perhaps we should note that nickel prices have hit a four-year low, on the combination of low demand and surging Indonesian supply. Russia is no longer a force in nickel supply. Prices for rough-cut diamonds are also plunging, this time on low demand out of China and their acceptance of artificial alternatives.
The UST 10yr yield is now at just on 4.53%, and up +2 bps from this time Saturday but that is a net +16 bps rise for the week.
The price of gold will start today at US$2622/oz and down -US$3 from Saturday. But that is down -US$36 from this time last week.
Oil prices are unchanged at just on US$69.50/bbl in the US while the international Brent price is still just under US$73. A week ago these prices were US$71 and US$74.50 respectively.
The Kiwi dollar starts today just on 56.7 USc and unchanged from Saturday. But that is down almost -1c from a week ago (57.6c USc). Against the Aussie we are holding 90.4 AUc. Against the euro we are still at 54.3 euro cents. That all means our TWI-5 starts today at just on 67.1 to be unchanged from Saturday at this time but down -50 bps from a week ago.
The bitcoin price starts today at US$95,659 and down another -1.5% from this time Saturday. A week ago it was at US$101,536, so down -5.8% from then. Volatility over the past 24 hours has been modest however 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.