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 showing signs of struggle, and yet the Wall Street-anticipated signs the US would slow in 2023 are yet to emerge.

But first, this coming week will be dominated by the US Federal Reserve's interest rate decision on Thursday (NZT). Also on Thursday, Fonterra will report its profit result and it is expected to be an unusually good one. Additionally in the United States, all eyes will be on the release of  September PMI figures at the end of the week, as well as several housing indicators earlier including housing starts, building permits, and existing home sales. Central banks in England, Japan, China, Turkey, Norway, Sweden, Thailand, Switzerland, Brazil, Indonesia, the Philippines, and South Africa will all be reviewing monetary policies and rates. Eyes will be on updated inflation rates in the UK, Canada, and Japan. And there will be PMI data for France, Germany, the UK, the Euro Area, Japan, and Australia.

Over the weekend, China said the cost of new houses slipped -0.1% in August from July, the same slippage as in the month before. Given the known low sales levels, this seems a dubious outcome, especially as only 16 of the 70 largest cities reported prices holding or advancing very slightly. The rest fell. For pre-owned houses, prices inched up in only 3 of the 70 major cities in August from July. The reported slippages in the other 67 cities were remarkably similar, which also doesn't pass the smell test. This all has significant implications for international travel volumes, and visitor levels from China.

China also said that "the total retail sales of consumer goods was 3,793.3 billion yuan, a year-on-year increase of +4.6%. Among them, the retail sales of consumer goods other than automobiles were 3.382 billion yuan, an increase of +5.1%" which is actually quite good. But it is simple math to extract from that "retail sales of automobiles", and that showed virtually zero growth.

Meanwhile, Chinese electricity production retreated in August from July coming in -2.5% lower, which for a country as large as China is quite a drop. Year on year, electricity production rose only +1.1%, also not indicative of an expanding economy. But nevertheless, they reported industrial production rose +4.5% from a year ago. Either China is undergoing a recent spectacular burst of energy efficiency and reduced energy density, or one of those statistics is unreliable.

And also struggling was foreign direct investment. "The actual amount of foreign capital used was 847.17 billion yuan, a year-on-year decrease of -5.1%" on an 8 month-to-date basis, they reported. But given they reported the seven month total as ¥767 bln that means the August inflow was ¥80 bln or less than NZ$19 bln which is a decline in the pace we have seen recently and tiny for an economy as large as China.

Over the weekend, the Russian central bank raised its policy rate by +100 bps to 13% to both battle rising inflation and defend the ruble. They can't seem to get it up from the 1 USc value. Meanwhile, Russian inflation is rising again, currently at 5.2% and the central bank expects it to rise to 7% by the end of the year.

Indian exports rose in August from July on the usual seasonal basis, but were down -6.9% year-on-year due to elevated commodity prices and weakening foreign demand. Imports fell too, so their trade deficit rose.

In the US, industrial production rose +0.4% from a month earlier in August 2023, above market expectations of a +0.1% increase and compared with a downwardly revised +0.7% rise in July. Year-on-year it is a small gain of +0.2%. One sector keeping these levels positive is their mining industry (which includes oil production).

However, the New York state factory survey turned quite positive in September. The headline general business conditions index rose twenty-one points to be a positive +1.9. New orders and shipments increased. Delivery times remained steady, and inventories continued to contract. And perhaps more importantly, looking ahead, firms continued to grow more optimistic about the six-month outlook.

But perhaps American factory data however won't be flash in September because of those strikes starting at their big three carmakers.

Also not quite so upbeat was the August University of Michigan consumer sentiment survey, however. It slipped from July, but is still at a higher level than at any time since late 2021, apart from the prior two months. Consumer views on current sentiment, current conditions and expectations of future conditions are all very much higher than a year ago.

Meanwhile, the US Fed balance sheet continues its wind-down even if the sell-off in the past week was relatively small.

The UST 10yr yield starts today up +1 bp at 4.34% and again near their August highs. A week ago this rate was 4.26% so up +8 bps from then. 

The price of gold will start today at just on US$1924/oz and up +US$2 from Saturday. And this is only marginally firmer from the week ago level of US$1920/oz.

And oil prices are +50 USc higher from Saturday at just under US$90.50/bbl in the US and back to its ten month high. The international Brent price is now over US$93.50/bbl. But for the week these are rises of +US$3.50/bbl or +4%.

The Kiwi dollar starts today little-changed from this time yesterday at 59 USc, still settled in its tight range. A week ago it was at 58.9 USc so little-change from then also. Against the Aussie we are holding at 91.8 AUc. Against the euro we are still at 55.4 euro cents. That all means our TWI-5 is actually little-changed at 68.5 and little-changed in a week too.

The bitcoin price has moved up a bit from this time Saturday, and is now at US$26,486, a small rise of 0.4%. A week ago, this price was US$25,820 so a +2.6% rise since then - in fact its first weekly gain since August. But volatility over the past 24 hours has been very low at just on +/-0.3%.

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.