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.

Today we lead with news China has become the handbrake on the global economy now, delivering a string of weak economic data.

And, first up there has been something of a surprise from the Middle Kingdom. The Caixin China General Services PMI plunged to a minor contraction in September after a solid-to-good expansion in August. This was the first contraction in services activity since May, and came as the amid the severity of the COVID outbreaks in many areas across the mainland built. It was however a faster retreat than was expected. New orders shrank for the first time in four months; while employment dropped for the ninth month running, with the rate of job shedding the steepest pace since May and backlogs grew for the second month in a row. Export orders expanded slightly, however, following an improvement in some foreign markets.

The private Caixin result comes after the official services PMI also fell but was recording a small expansion still in September. It has been a while since the Caixin results have reported worse levels of activity than the official surveys.

China's week-long holiday is ending and it is clear many people were staying at home this year. Travel data reflects that with activity down -36% compared to last year - which itself wasn't a strong event either.

And residential real estate sales have often been strong in this period too, but early reports suggest they could be -38% lower this year than the same period a year ago.

China's foreign exchange reserves were expected to fall to US$3 tln in September, a -US$55 bln retreat. But they didn't actually fall that hard, only declining -US$26 bln to US$3.029 tln.

Taiwanese exports dived in September, down -5.3% when a +1.5% rise was expected. This is a big and maybe important miss.

The giant US economy added more jobs than expected in September even if the gain was the lowest in 18 months. The headline gain was +263,000 when a +250,000 gain was expected. Holding it back was a -41,000 fall in Government workers. Apparently schools are finding it very difficult to recruit teachers in the charged political environments in many communities. But as regular readers will know, we also look at the raw data that is not seasonally adjusted. That shows overall payrolls rose +431,000 in September and taking the paid workforce to 153 mln.

The jobless rate fell to 3.5%. Their participation rate rose to 62.3%. Average weekly earnings rose +4.8% pa but at a +7.8% pace in September from August.

By any measure this represents a tight American jobs market. And the US central bank will know it can keep targeting inflation on the back of a resilient labour market that shows no sign of being hurt by that press. In fact the 'real' +431,000 rise in employment will bring even more spending impetus to the American economy. Rising wages do to. So the Fed isn't easing up on the rate rises any time soon.

The prospect of another +75 bps hike has equity and bond markets retreating as they revalue their asset holding to reflect the lower P/E ratios this implies.

Data out on American consumer debt shows that it grew by +US$32 bln in August from July, a much faster +8.3% pa rate than was expected. American now owe US$4.7 tln in this type of debt, or 21% of their annual economic activity (GDP).

This coming week will start the Q3 earnings season reports. It is expected to be a pretty lackluster affair, with expected earnings gains to be only +2.2% overall, down from the Q2 +9.9% reported. Tech sector earnings are expected to be even lower at under +1%. That means equity market news is expected to be dominated by as many underachievers as overachievers and that will depress market enthusiasm and momentum over the coming three weeks.

In Canada, they also delivered a positive employment report, a bounce-back in September from their August slip. They added both full- and part-time jobs with their participation rate rising to 64.7%, wages rising +5.2% pa, and their jobless rate falling to 5.2% which is 'average' for them, but it is below pre-pandemic levels.

German retail sales fell -4.3% in 'real' terms in August, the retreat they were expecting. In nominal terms, like every other country reports, they rose +5.4% due to the effects of inflation.

In Switzerland, Credit Suisse has come under scrutiny in recent weeks as investors speculate over its financial health. But it has initiated an almost US$5 bln share buy-back to bolster its claim that fears are overblown. From this and other actions, the markets have responded with a sharp +23% rise in its share price recently. In CHF its a +16% rise.

The crisis of high and rising food prices seems to have passed - well, passed its extreme levels anyway. Overall prices are almost back to year-ago levels now with another but smaller retreat in September. However, year-ago levels were high on an historic basis, but the trend is now lower. Dairy and meat prices are generally holding. It is a sharp retreat in vegetable oil prices that is driving overall prices lower. Bothe Canada and Australia are having outsized production years, helping the situation significantly.

The UST 10yr yield starts today at 3.89% and up another +1 bps from this time Saturday. 

The price of gold will open today at US$1695/oz. This is down -US$5 from this time Saturday.

And oil prices start today up +US$1 from this time Saturday at just under US$92.50/bbl in the US while the international Brent price has risen to be just under US$98/bbl.

The Kiwi dollar will open today at 56.1 USc and a bit softer from this time Saturday. Against the Australian dollar we are little-changed at 88.1 AUc. Against the euro we are also unchanged at 57.6 euro cents. That all means our TWI-5 starts today at 66.6 and little-changed.

The bitcoin price is now at US$19,508 and a very marginal +0.3% above this time Saturday. Volatility over the past 24 hours has been low at just over +/- 0.5%.

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.