Eyes on China & American economic policymakers

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 the US Federal Reserve is meeting to review its monetary policy settings and uncertainty levels are high and rising, both on the growth and inflation fronts.

But first, as we noted yesterday, China's State Council has launched 'a special action plan' to boost domestic consumption, including increasing residents' income and establishing a childcare subsidy scheme. The plan came a week after the Premier's work report to the National People's Congress, which focused on boosting household spending to cushion the impact of weak external demand.

This had a notable impact on many, mainly Asian, financial markets.

Meanwhile, China released an important set of recent data overnight. Their new home prices in 70 cities dropped by -4.8% year-on-year in February, easing from a -5.0% decline in January. This marked the 20th consecutive month of decreases but represented the softest pace since last June. For second hand home prices, they are down -7.5% year-on-year.

China's retail sales were up +4.0% in the January/February period, a better rise than for any month, other than for October.

China's industrial production was said to be up a strong +5.9% in the same period. However that doesn't quite square with their electricity production data in the same period which was -1.3% lower.

Singapore's exports recovered in February after the disappointing January data. There were up +7.6% after falling -2.1% in January. However, that bounce back was weaker than analysts had expected (+8.7%).

Indian exports were unremarkable in February, coming in just under US$37 bln and still low for an economy of this size, certainly one that is 'booming'. In India, it is all about internal demand. For reference, India's exports were US$41.4 bln in February 2024, so a shrinkage of -11% on that basis. They may be looking for new markets to shore up this weak performance.

Legendary investor Warren Buffett once said his strategy is to be fearful when others are greedy, and greedy when others are fearful. Right now, market fears are high, in fact 'extreme'. So what is he doing? He is raising his stakes in Japanese trading houses.

US retail sales in February were a disappointment. They fell -0.2% from January when a rise was anticipated and are now -0.9% lower than year ago levels. On an inflation-adjusted basis it will be worse than that. January data was soft too, and revised lower. Seven of the report’s 13 categories recorded declines, including car sales on a year-on-year basis. This data is consistent with earlier data indicating defensive consumer attitudes.

A 'fear' retreat by American consumers will likely have more of a global impact on trade and consumption than tariffs by themselves.

That same hesitancy also shows up in the NAHB/Wells Fargo Housing Market Index which fell in March to its lowest level in seven months, and below what was expected. Current sales conditions fell sharply, sales expectations in the next six months held steady, while traffic of prospective buyers dropped sharply too. And not helping the builders is cost uncertainty.

It is even tougher in the latest update of the Empire State factory survey by the New York Fed. This is often a volatile survey, but the March results record the largest pullback since May 2023. New order intake levels were particularly weak. Capital spending was very weak too. The New York Fed called the retreat "significant".

But at least national business inventories in relation to sales activity are still within range, even if they did rise in February.

In Canada, housing starts fell -4% in February to an annual rate of 229,030 units, down from a revised 239,322 units in January and below market expectations of 250,000.

Less trade has seen the OECD trim its 2025 and 2026 forecasts for economic expansion. Annual GDP growth in the United States is projected to slow from its +2.8% 2024 pace, to be +2.2% in 2025 and +1.6% in 2026. China's growth rates are slowing too. But they do expect improvements in Australia. (See page 5.) They see inflation rising to above policy target levels. New Zealand gets no mention in this update.

The UST 10yr yield is now at 4.30%, down -2 bps from yesterday at this time. 

The price of gold will start today at just on US$2994/oz and up another net +US$9 from yesterday.

Oil prices are up +50 USc from yesterday at just on US$67.50/bbl in the US and the international Brent price is at just on US$71/bbl.

The Kiwi dollar is now at 58.2 USc and up +70 bps from this time yesterday. That is its highest level since December 10, 2024. Against the Aussie we are up +30 bps at 91.2 AUc and a similar three-month high. Against the euro we are up +40 bps at 53.2 euro cents. That all means our TWI-5 starts today just under 67.3, and up +50 bps to a two month high.

The bitcoin price starts today at US$83,439 and down just -0.2% from this time yesterday. Volatility over the past 24 hours has again been modest at +/- 1.2%.

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.