Kia ora,

Welcome to Thursday’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 has rolled out what might be the first in a set of ¥1 tln stimulus/recovery moves.

But first, American mortgage applications rose for a third consecutive week last week, up +3.7% even though there was little movement on benchmark interest rates. Perhaps this market is emerging from its slumbers.

The 'flash' January PMI data for the US is also quite strong. Service sector activity expanded the most in seven months, while manufacturing firms continued to experience a moderate drop in output. New business expanded for the third consecutive month and at the sharpest pace since June, despite the second consecutive monthly decline in new export orders. This is not a description of a struggling economy - maybe not firing on all cylinders yet but certainly on the up.

The Bank of Canada held its policy rate at 5% for the fourth consecutive time overnight. This was as widely expected, leaving benchmark borrowing costs at a 22-year high. Like its southern neighbour, it is still selling down its bond holdings via its quantitative tightening program.

Japanese exports are firing impressively. They were up +9.8% in December from the same month a year ago, more than expected. And with the sharp drop in oil prices, the cost of their imports fell equally impressively, down -6.8% on the same basis. That enabled them to log an unexpected trade surplus in December. (They can probably thank the missteps from Xi and Putin for this result.)

And Japan's January PMI's were all stronger, which is no surprise.

In China, their central bank announced they will reduce the reserve requirement ratio (RRR) for all banks by 50 basis points to just 10% starting from February 5, releasing up to ¥1 tln to the market to try and get an economic recovery going. (They seem to have a penchant for 1 tln policy moves at present - and they are adding up.) This would be the lowest RRR level since March 2007. The PBOC had previously cut its RRR by 25 bps in both March and September last year. Additionally, starting today, they have lowered re-lending and re-discount interest rates by -25 bps, targeting the rural sector and small businesses. These announcements certainly boosted equity markets.

They need a boost. German companies operating in China are less than positive even if they remain committed to staying. 83% of the 566 respondents in a survey released overnight said China “is facing a downward trajectory” economically. Nearly two-thirds said they expected a recovery to take one to three years.

Although China's GDP grew by +5.2% in 2023, achieving Beijing's target of "around 5%", its nominal GDP in US dollar terms fell for the first time in 29 years as its share of the global economy shrank for the second straight year.

In Europe, business activity fell at the slowest rate for six months in January, according to 'flash' PMI survey data. But downturns are persisting in both the manufacturing and service sectors as they get further falls in new orders. The overall contraction of new orders was however the smallest recorded since last June, helping stabilise employment levels and lift business optimism about the year ahead to an eight-month high.

Meanwhile, the ECD has reportedly asked some banks to closely monitor activity on social media to detect a worsening in sentiment which could lead to a deposit run. While early detection might not stop a bank run like SVB or Credit Suisse, regulators and banks are eager not to be caught off guard, according to the people familiar with the regulators' thinking.

In Australia, their 'flash' January PMIs were similarly underwhelming. Activity continued to decline but the pace of reduction eased alongside a slower fall in new orders. However there were improvements in business sentiment while employment levels also continued to rise. Inflation pressure fell.

The UST 10yr yield starts today at 4.16% and little-changed from this time yesterday. 

The price of gold will start today down +US$12/oz from yesterday at just on US$2012/oz.

Oil prices are up +US$1at just over US$75.50/bbl in the US while the international Brent price is still just over US$80/bbl.

The Kiwi dollar starts today at 60.2 USc and -½c lower from this time yesterday (and a new two month low). Against the Aussie we are firmer at 92.8 AUc. Against the euro we are also firmer at 56.2 euro cents. That all means our TWI-5 starts today just under 70.1 and up +30 bps in a day.

The bitcoin price starts today a little higher. It is now at US$40,126 and up +2.5% from this time yesterday. Volatility over the past 24 hours has been modest to moderate at just under +/- 2.0%.

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.