China loses steam ahead of holidays; Wall Street loses steam today

Kia ora,

Welcome to Tuesday’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 Wall Street is reassessing its valuation basics, and there is a general pullback across the board. It started with questions about an AI valuation bubble, but is extending to others now. "Risk-off" is the mood today.

But first, yesterday's reporting of China's official PMIs for January all took a step lower, now recording virtually no expansion. This was weaker than expected. Their factory PMI fell into a contraction state (49.1), while their services PMI retreated to only a weak expansion (50.2). It wasn't the result policymakers there would have wanted given they have been trying to stimulate their economy for more than three months now. It that effort is working, the core must have been quite compromised.

Chinese industrial profits were reported to be -3.3% lower in the year to December than the same period in 2023. But perhaps there are some reason to be positive for December alone, they were +7.0% higher than the same month a year ago - and that might have been their best December on record. Hard to tell how much Beijing stimulus was part of that late effort however. However, the January PMIs probably mean they have got off to a weak start in 2025.

China's tax take grew +1.3% in 2024 following a 6.4% rise in 2023. The sharp slowing followed slowing domestic demand and a slump in their property market, all consistent with the overall economic challenges they have.

Bloomberg is pointing out that current commercial real estate activity in Hong Kong is crystalising some very large losses. This re-rating will have loud echoes in many places. It is one of Hong Kong's worst slumps in history, with no end in sight. Average prices of office buildings, shopping malls and other properties have fallen more than 40% from their highs in 2018, eroding the value of the collateral backing many bank loans. Defaults are also rising as more property owners and developers run into severe cash flow difficulties.

None of these China-based news data items will be helping the Spring Festival mood in the business sector.

In the US, the Dallas Fed's Texas manufacturing survey picked up pace in January to its highest since October 2021. New orders hit their highest since April 2022, while capacity utilisation and shipments also rose.

Meanwhile, there was also a rise in new home sales in the US in December, taking them back to mid-range for any 2024 month.

And the Chicago Fed's National Activity index improved in December. All this gritting economic activity bodes well for the 2024-Q4 GDP result due out on Friday.

The UST 10yr yield is lower at 4.53%, down -9 bps from yesterday at this time. 

Wall Street is down sharply today with the S&P500 down -2.0% to start its week. 

The price of gold will start today at US$2733/oz and down -US$37 from yesterday.

Oil prices are down -US$2 at just over US$72.50/bbl in the US and the international Brent price is now under US$76.50/bbl.

The Kiwi dollar is now at 56.8 USc and down -30 bps from this time yesterday. Against the Aussie we are unchanged at 90.5 AUc. Against the euro we are down -20 bps at 54.2 euro cents. That all means our TWI-5 starts today just on 67.1, and down -30 bps from yesterday.

The bitcoin price starts today at US$99,190 and down -5.5% from this time yesterday. Volatility over the past 24 hours has been high at +/- 3.8%.

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.