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 a lot happened so let's get into it.

In the week ahead we will get the US Fed's interest rate decision, and American inflation and retail sales data. We will also get central bank updates from the ECB, the Bank of England, the Swiss National Bank, Norges Bank, and Brazil’s central bank.

But first up we need to report that China is now in deflation again. Consumer prices fell -0.5% in November from a year ago, steeper than a -0.2% drop in the prior month and compared with market forecasts of a moderated -0.1% fall. It was the fastest decline in Chinese inflation since November 2020, driven my faster falling food costs, at the strongest pace in over two years and the biggest impact here was from a sharper fall in pork prices. Beef, lamb and milk prices are also falling although nothing like the pork prices. Meantime, non-food inflation slowed notably from +0.4% from +0.7%.

Chinese producer prices also fell faster and by more than anticipated.

But even in the face of current and obvious economic restraints, Beijing looks set to launch an ambitious growth target for 2024. Maybe as high as +5%. But there is no indication that huge stimulus programs are about to be launched. New debt support however will be a part of it. One thing is becoming clearer however, Hong Kong's days as a financial center are drawing to an end with mainland policies undermining its judicial independence and court transparency. Contracts entered into there have to meet Beijing's control measures. This sort of window dressing doesn't apply when it puts the CCP in a bad light.

Across China, presale properties are taking a hit as homebuyers fear that financially distressed developers will not be able to deliver despite upfront payments. The share of presale properties between January and October this year slumped to the lowest point since 2017.

Meanwhile, Taiwan's export growth was expected to have turned positive in November and that is how it turned out - although the year-on-year gain wasn't quite what was expected even if the miss was minor. It has been a year and a half since they have had a gain like this, however.

Across the Pacific, the US economy added +199,000 jobs in November, more than the +150,000 added in October and better than the expected +180,000 gain. The strength was across the board, including for manufacturing.

Away from the headline seasonally-adjusted data, the actual employer payrolls came in at a record 158.5 mln, up a strong +488,000 from October. For the broader household survey of employment which includes the unincorporated self-employed, it rose to 162.1 mln and also an all-time record, swelling +473,000 in the month (revealing a small shift to company payrolls). Either way you look at it there were many more workers getting paid in November than October, +3.4 mln more in a year (+2.8 mln more on company payrolls). It is a significant shift (and achievement).

The golden jobs run is lifting confidence. The University of Michigan's consumer sentiment survey surged to 69.4 in December, rising from 61.3 in the previous month and surpassing market expectations set at 62.0. It was the highest level recorded since August, largely driven by positive shifts in the expected path of inflation. They dropped to 3.1% from November's 4.5%, marking the lowest level recorded since March 2021.

And there doesn't seem to be any stress showing up in American consumer debt levels. They rose a much tamer (and minor) +US$5.1 bln in October from September to US$4.968 tln or just 18.1% of US GDP. A modest +US$9 bln rise was expected and that too would have been low. Rising employment and solid pay increases (+4.0%, so higher than inflation) are helping consumers keep a lid on their consumer (non-housing) debt. If the global economy does wobble, it won't be because of US household finances in the current state.

All this run of positive data has markets pulling back on their enthusiastic expectation that the Fed will be cutting rates in 2024. Again, it is the Fed that is getting the future view right, not the commentariat. They are meeting this week and will announce the results of its policy deliberations on Thursday (NZT) along with their closely watched and highly anticipated quarterly Summary of Economic Projections. Markets expect no change in their policy rate at 5.5%, and holding at its 20+ year high. (Remember, markets have priced in American rate cuts starting in Q2-2024.)

The release of the December version of the USDA WASDE report caused barely a ripple, mainly because they report a sanguine crop and livestock situation worldwide with adequate stocks and balanced demand and supply. US beef import estimates are raised for 2024 on expectations of demand for processing-grade beef. US milk production is retreating somewhat.

The UN FAO also reported on December global food prices and they said the same. Food price stress has long eased and the global costs of meat and dairy have eased more than most other categories. Overall prices are falling and back to early 2021 levels and far below the intervening bubble.

The Reserve Bank of India held its benchmark policy rate at 6.5% for the fifth consecutive meeting on Friday. They seem confident they are keeping inflation within their generous 2-6% target range. The rate hold was in line with market expectations. India's annual inflation slowed to a four-month low of 4.9% in October.

In Australia, the incoming Labor Government ordered a competition review of how banks treat retail savers. They were particularly keen to get banks to automatically switch savers to the 'best rates' on rollover. Borrowers got the RBA's rate changes in a full pass-through, but savers did not. That review has now ended and the results will be tabled this coming week. It will be interesting to see whether the industry responds with generally higher savings rate offers, or higher lending rates.

Prior to that, over the weekend their Government announced it will raise fees for foreigners who buy existing houses and will penalise them if they leave the properties vacant. They also decided they will incentivise foreign investors for build Build-to-Rent properties to boost their housing supply.

We should also note that Queensland Premier Annastacia Palaszczuk has announced she will step down as premier this coming week after nine years in power.

The UST 10yr yield is holding firmer at 4.23% but little-changed in a week. 

The price of gold will start today just on US$2005/oz and up +US$8 from Saturday.

Oil prices are up +US$1 from Saturday at just under US$71.50/bbl in the US. The international Brent price is now just under US$76/bbl. A week ago these prices were US$74.50 and US$79/bbl so a net -US$3 shift lower since then.

The Kiwi dollar starts today at 61.2 USc and up a minor +10 bps from Saturday. A week ago we were at 62 USc. Against the Aussie we are also up +10 bps at 93.2 AUc. Against the euro we are still at 56.9 euro cents. That all means our TWI-5 starts today just on 70.2, -50 bps lower than a week ago.

The bitcoin price starts today at US$43,820 very little changed from this time Saturday (+0.3). However, a week ago it was US$38,773, so a +13% rise from then. Volatility over the past 24 hours has been low at +/- 0.5%.

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.