Of ruts, twists, stalls & downgrades

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 is still stuck in its rut, the US twisted by tariff talk, Japan sees progress, and Russia's currency gets a big downgrade.

But first, this coming week will end with the US non-farm payrolls report, and analysts expect a sharp recovery to +183,000 added jobs, far higher than the unusual (pre-election) October report of just +12,000. Before that they will deliver their JOLTs report, and there will be factory order data, more PMIs, and more sentiment surveys.

India will review its official interest rate. South Korea and Turkey will report CPI inflation rates. Australia will report its Q3-GDP on Wednesday. And there will be many other PMI reports.

In fact, over the weekend, China said its official factory PMI made a tiny improvement to maintain its small expansion. It was its second 'positive' result in a row and its best since April. At the same time the minor positive reading for its services sector disappeared. Taken together, this paints a picture of an economy without any expansion. We will get the Caixin PMI data tomorrow, and that has tended to be marginally more positive recently.

In Japan, their central bank boss said they are "approaching" a decision with a view they will raise their policy rate from the current 0.25% to 0.50%. They like their current data track, but they hesitate because they don't have a firm fix on the damage the incoming US Administration will do.

"I am not worried much about Japan's financial system because ample capital, stable deposits and access to liquidity have been ensured," he said. In contrast, he noted that "non-bank financial institutions are posing a grave problem" in the US and added that "they deserve to be closely monitored."

Japanese consumer sentiment recovered somewhat in November, still positive, but nothing like what they had from December to March earlier in the year.

Japanese retail sales rose +1.6% in October, recovering from the weak September expansion, but still much lower than what they have achieved monthly since early 2022. At least it is back heading in the "right" direction.

And Japanese industrial production rose +1.6% in October from a year ago, ending two months of retreat

South Korea's industrial production rose in October at a very strong +6.3% pace from a year ago, after the unusual stumble in September, returning to the average expansion they have had since September 2023. So it will be no surprise to learn that their exports kept rising strongly in October, as did their imports.

However Korean retail sales slipped in October to be -0.8/% lower than a year ago

India's economic expansion is 'consolidating', delivering a somewhat disappointing Q3-2024 result. Their economy rose +5.4% from the previous year, slowing from the +6.7% expansion in Q2-2024 and well below market expectations of a +6.5% increase. It was their softest pace of growth since Q4-2022. Still, even at the latest lower rate, it is rising on a per capita basis.

This miss adds pressure on the Reserve Bank of India to cut its policy interest rate which currently stands at 6.5%. They review it next on Friday.

The Indian currency fell on the news to a record low against the USD. Although not a record low against the NZD, it is has been close to that since the whole period from end of 2020.

In the US, early reports from card companies and industry monitors show that in-store retail sales growth for Back Friday sales was quite modest - even disappointing - and up only +0.7% from the same day a year ago. But online sales activity burst higher, up more than +14% on the same basis.

In Canada, their Q3-2024 GDP growth came in +1.0% higher than a year ago, up +0.3 for the quarter. This was not enough to prevent a fall in per capita GDP. On that basis it fell -0.4% in the third quarter, which was the sixth consecutive quarterly decline.

In Europe, inflation expectations in the euro zone for the year ahead edged up slightly in October to 2.5%, and stayed steady for three years out at 2.1%, the ECB's monthly Consumer Expectations Survey showed

EU CPI inflation rose to 2.3% in October, up from 2.1% in September, but still clearly in a down-trend that started in November 2022.

In Russia, their currency suddenly fell over the weekend to near record lows (a record if you exclude the full invasion spike in 2022). The falls were not only vs the USD, but the Chinese yuan as well. The economic pressure on the Russian economy is mounting as it suffers severe distortions and indigestion, the longer it presses its invasion of Ukraine.

In Australia, private sector debt rose +6.1% in October from a year ago, driven primarily by business debt growth, up +8.3% on the same basis, but housing debt growth was up +5.3% too. Other personal debt only rose +2.2% in October. (From a Kiwi perspective, these are relatively fast rises. Late last week equivalent RBNZ data showed business debt rising only +1.1%, housing debt rising only +3.5%, and personal debt up only +1.7% in the year to October.)

In Australia there is some scepticism that their debt tide rise will be maintained.

And their housing market is showing signs of exhaustion. November data shows sales volumes -4.6% lower than a year ago. The largest drop in the volume of home sales has been in Sydney, where sales over the rolling quarter were estimated by CoreLogic to be more than -15% lower than a year ago. But that isn't easing their rental crisis where the vacancy rate is less than 1%.

The UST 10yr yield is now at just on 4.18%, unchanged from Saturday but down -23 bps from this time last week. 

The price of gold will start today at US$2649/oz and down -US$10 from this time Saturday, and down -US$56 from this time last week.

Oil prices are little-changed, still just over US$68.50/bbl in the US while the international Brent price is just under US$72.50/bbl. A week ago these levels were $2.50/bbl higher, so a retreat from then.

The Kiwi dollar starts today at 59.3 USc and up +10 bps from this time Saturday. But it is up +1c from this time last week. Against the Aussie we up +60 bps at 90.8 AUc. Against the euro we unchanged at 56 euro cents. That all means our TWI-5 starts today at just over 68.6, and little-changed from Saturday, up +50 bps from a week ago.

The bitcoin price starts today at US$97,372 and up a minor +0.3% from this time Saturday. Volatility over the past 24 hours has been low at +/- 0.9%.

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.