Kia ora,

Welcome to Friday’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 the extent of China's economic stumble amid its latest pandemic crisis is becoming evident.

But first, the level of new American jobless claims continues to fall, sinking to new modern lows with 193,000 new actual claimants last week. There are now 1.65 mln people on these benefits, the lowest since 1968, and the lowest in more than half a century. Note that the US labour force grew by +100 mln in that time and is now 2.5 times larger so as a proportion of the workforce, this is easily the lowest ever.

A well-known Fed hawk is out pitching for a rate hike program totaling +300 bps, noting the US economy is booming and unless they act fast inflation will get away on policymakers. Essentially he is backing up Vice Chair Brainard's recent remarks.

There was clear evidence of the boom conditions in the US economy this morning. The Fed's data on consumer credit jumped far more than expected in March. It grew by +US$42 bln in the month, the most ever and reaching US$4.45 tln. Two thirds of the rise was for revolving credit, such as for credit cards. It isn't clear yet whether that is a sign of consumer stress, or consumer optimism. With the jobless rate being very low, and jobless benefit claims very low, it seem unlikely to be stress-related.

Later today, Canada will release its Budget for 2022/203 and it is widely expected to contain a plan to ban foreigners from buying houses, among other housing measures. This is in direct response to the continued rise and rise of house prices. Median house prices have risen more than +50 in the past two years alone, now topping NZ$1 mln as a country-wide average. Toronto is the flash-point, but Vancouver is also in the stratosphere. (Our median is NZ$885,000 and the median for the US is NZ$518,000.)

China's foreign currency reserves fell almost -1% in March from February. It was their third monthly fall and comes amid both an outflow of foreign investment and a strengthening of the US currency. The decline has been a long-term trend. They now stand at US$3.18 tln, about 21.5% of GDP. Five years ago they stood at 25.5% of GDP.

It is also becoming clear that China's 2022 growth target of "about 5½%" is going to undershoot. We are only a quarter of the way through the year and already analysts think it will be more like 4½%. But that assumes the stresses ahead don't get worse.

The growing pandemic crisis in China is having severe hardship consequences, and not only the well-publicised ones in Shanghai. Less than a year after President Xi claimed victory over "extreme poverty" some provinces are about to fall back into that condition. Oddly, Beijing's ‘common prosperity’ push is said to have been put on back-burner until their economy recovers, which is telling about the current state of their overall economy. It is clear that no-one in China actually knows how to get out of this situation, one forced on them by the combination of a healthcare system unable to cope, a vaccine that isn't very effective against Omicron, and widespread antivax sentiment especially among the older, traditional population.

The fallout on trade from New Zealand could be significant and over a longish period.

In Australia, all four economic teams at their big banks are now saying their central bank will start raising its policy interest rate in June.

A widely-watched local services PMI in Australia expanded much less in March than it did in February. But the high February level was the outlier, not these March results.

The UST 10yr yield opens today at 2.66% and up another +5 bps from this time yesterday. 

The price of gold starts today at US$1935/oz and +US$14 higher than this time yesterday.

And oil prices are down again, but only by -US$1 to just under US$95/bbl in the US. And the international Brent price is now just under US$100/bbl.

The Kiwi dollar will open lower than at this time yesterday at 69 USc. Against the Australian dollar we are firmer at 92.3 AUc. Against the euro we are little-changed at 63.4 euro cents and holding recent gains. That all means our TWI-5 starts today at just under 74.7 and very little-changed.

The bitcoin price has stayed down and slipped a further, and minor, -0.8% since this time yesterday and now at US$43,538. Volatility over the past 24 hours has been modest at +/- 1.7%.

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 on Monday.