China struggles to find way forward

Economy Watch

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.

Today we lead with news that the big news is the 'no news' out of China where they left their benchmark interest rates unchanged, torn between defending the yuan, and shoring up their property sector.

But first in the US, the National Activity Index (NAI) produced by the Chicago Fed slipped negative in October even though the prior month was revised to a stronger expansion. It was the weakest reading in four months, and another indicator the giant American economy is slowing, although it was not the sharp decline some were expecting.

Still, commercial banks in the US have been tightening their lending standards recently, and this may have as much impact on their economic expansion as the Fed's own tightening.

One company really struggling is fake-meat heavyweight, Beyond Meat.

In Taiwan, they reported sharply weaker export orders for October (-6.3%), way weaker than they were expecting (-1%). Countering that however was a commensurate fall in the Taiwanese currency.

In China, they kept benchmark interest rates unchanged for a third straight month yesterday, holding off on cuts that could risk dragging down the yuan, though some question how long this will continue. Policymakers there are torn between defending a weak yuan and doing what is necessary to protect their property market from a sudden collapse.

And the recent surge in Covid infections, especially in some major urban centers, is now turning into a death 'surge'. Not large by international standards, but enough to bring into question whether their new looser policies will last, or whether they are about to go into some bigger lockdowns.

In Malaysia, their election has brought more confusion, with no clear winner and a mad scramble to build coalitions.

In Germany, they may be seeing a sharp pullback in inflation. Certainly their producer prices rose a lot less in October than expected, and far less than they rose in September. In fact, they fell in October from September and by more than -4%, and are now +35% higher than year-ago levels. This was the first month-on-month decrease since May 2020, and the largest month-on-month decrease in a very long time, and maybe since the 1950s.

While housing markets are cooling across the world with fewer transactions taking place, price declines have yet to begin in a number of countries. Home prices in Canada are now down -10% from the peak. Sweden is the latest to report sharp declines, down -14% with -3% of that in October alone. And peak-to-trough declines of as much as -20% are forecast for countries including the US, the UK and New Zealand.

The UST 10yr yield starts today at 3.82% and down -1 bp from yesterday.

The price of gold will open today down -US$16 at US$1735/oz.

And oil prices start today down -US$1/bbl from this time yesterday at just on US$79/bbl in the US while the international Brent price is just over US$86/bbl. But these levels are an intra-day recovery from even lower levels.

The Kiwi dollar will open today at 61 USc and down -½c. Against the Australian dollar we are a tad higher at 92.5 AUc and its highest since April 2022. Against the euro we are +½c higher at 59.5 euro cents. That all means our TWI-5 starts today at 70.4 and little-changed.

The bitcoin price is now at US$15,964 and down -3.6% from this time yesterday and a two year low. Volatility over the past 24 hours has been moderate at +/- 2.2%.

You can find links to the articles mentioned today in our show notes.

And get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston and we’ll do this again tomorrow.