China holiday & US Fed decision dominate global economy this week

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 that we will be watching for China holiday demand signals, and watching how the US Fed handles new sharp political interference.

Also, this week will bring a slew of big economic announcements in many places, but not China which is starting its Lunar New Year week-long holiday after their PMI data is released (later today). Elsewhere it will be a big week of central bank policy reviews, capped by the US Fed, although they are expected to deliver no rate change. However both Canada and the ECB are expected to cut rates by -25 bps. Sweden (-25 bps?) and Brazil (no-change?) will also be meeting.

We will also get GDP results for the US (+3%?) and many key countries in the EU. Australia will release its Q4 CPI result. And of course the Wall Street earnings season results will continue.

But first, the early 'flash' release of the globally-benchmarked S&P/Markit PMI for the US for January shows that their factory sector is back expanding with a small gain to a 7-month high. But there was a notable pullback in their services sector, still expanding but quite a bit slower than in December. So the composite PMI is at a nine-month low. (In January 2024 is was even, neither expanding nor contracting. In January 2023 is was contracting.)

US existing home sales were up +2.2% in December from November to an annualised rate of 4.38 mln units, the most since February 2024 and despite mortgage interest rates over 7%. But in a long term perspective, this level is still very low, similar to what they had in the mid-1990s

There was an update to the University of Michigan sentiment survey for January out over the weekend, and it was revised lower. But the inflation tracking in this survey was unchanged at 3.3%, an eight month high.

Across the Pacific, Japanese inflation jumped to 3.6% in December from 2.9% in the November, the highest level since January 2023 and well above the 3.2% level expected. Food prices were a notable driver, up 6.4%. Their core inflation rate climbed to a 16-month high of 3%, in line with market estimates.

This bolstered the case for the Bank of Japan to raise its policy by +25 bps to 0.5% at their review on Friday, and that is exactly what they did.

Meanwhile the Japanese factory PMI contracted a bit more in January than the very minor contraction in December. But their services PMI expanded more in January than in December, and by much more than expected.

Singapore's central bank loosened its monetary policy on Friday, it’s first such move in more than four years. Rather than interest rates, their monetary policy centers on exchange rates, via the S$NEER, allowing the Singapore dollar to rise or fall against the currencies of major trading partners to stabilise prices.

In China, we should remind readers that their week-long 'Spring Festival' holiday will start tomorrow, Tuesday, January 28 and run until Monday, February 3, 2025. Only after that will they be back to normal. Chinese New Year is on Wednesday January 29, which ushers in the Year of the Snake.

In India, their January PMIs show 2025 beginning with the private sector slowing and services losing steam. Having noted that, the expansion there is still very strong. But inflation pressure, especially in their services sector, is rising, suggesting growth at this level is creating distortions which will take the edge off it for most people.

In Europe, their January PMIs showed they "returned to growth". That came with the combination of their factory sector contracting less and their services sector expanding more.

Australia's factory PMI contracted noticeably less in January, and now is barely contracting at all. New orders rose, but prices rose faster too. Their service sector however expanded at a slower pace in the month.

And staying in Australia, Westpac is pointing out that tax cuts there are not boosting consumer spending in the way expected. Three quarters of these cuts are being used by households to either pay down debt or increase savings.

The UST 10yr yield has held 4.62% unchanged from Saturday at this time. 

Reporting of Wall Street's Q4 earnings is well under way and is off to a strong start. Both the percentage of S&P 500 companies reporting positive earnings surprises and the magnitude of earnings surprises are above their 10-year averages. As a result, the index is reporting higher earnings for the fourth quarter today relative to the end of last week and relative to the end of the quarter. In addition, the index is reporting its highest year-over-year earnings growth rate for Q4 2024 in three years. So it is no surprise that the S&P500 is near its record high.

The price of gold will start today at US$2771/oz and down -US$5 from Saturday, but up +US$55 for the week.

Oil prices are holding at just over US$74.50/bbl in the US and the international Brent price is now under US$78.50/bbl.

The Kiwi dollar is now at 57.1 USc and down -10 bps from this time Saturday but still near a one month high. Against the Aussie we are unchanged at 90.5 AUc. Against the euro we are also unchanged at 54.4 euro cents. That all means our TWI-5 starts today just on 67.4, the same as they were on Saturday, but up +60 bps for the week.

The bitcoin price starts today at US$104,928 and down -1.4% from this time Saturday. Volatility over the past 24 hours has been quite low at +/- 0.5%.

Monday is the Auckland Anniversary holiday and most businesses in the northern half of the North Island are closed. It is also Australia Day. 

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.