Economy Watch

Kia ora,

Welcome to Wednesday’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 all eyes will be on the 2pm RBNZ announcement of its Monetary Policy update where it is widely expected that a +50 bps rate increase will be announced.

But first up today there was another dairy auction earlier today and it was a lame affair. Overall prices fell -1.5% in USD terms, but were virtually unchanged in NZD terms (+0.3%) because of a shift lower in our exchange rate. The key WMP price fell -2.0% and SMP was down -2.4%. But there were offsetting gains for butter (-3.8%) and cheddar (+1.5%), indicating returning demand from the Chinese foodservice sector. The recent storms here that will curtail overall milk supply seemed to have very little impact on the attitude of buyers.

In the US there was a surprising improvement in their services PMI, shifting from contraction in January to and expansion in February according to the internationally-benchmarked Markit version. Their factory sector is still contracting however, but at a lesser rate this month than last. The growth in new orders is slowing, but just at a slower rate. This is more evidence they may either only have a soft landing, or possibly no recession at all.

Major retailer Walmart said it is gaining market share in the grocery sector. And that includes among higher-income households that are spending cautiously.

However their existing home sales market is still retreating. In January it fell -0.7% after a December -2.2% fall. That has been a disappointment because a +2.0% rise was anticipated. These volumes are -37% lower than a year ago now, and the January activity is now a 12th straight month of decline.

Canada release its inflation rate for January today, coming in lower at 5.9% when a 6.1% rate was expected and December was at 6.3%.

Canadian retail sales for December ran +7.3% ahead of year ago levels, so ahead of inflation there.

In Hong Kong, HSBC released a sharp rise in earnings for 2022. But it is also provisioning sharply higher for its exposure to the Chinese commercial property sector. They said that they expected credit losses and other impairment charges were raised to US$3.6 bln for 2022, sharply higher than the US$1.1 bln for the first half and a reversal from a positive US$928 mln for 2021.

There were flash PMI results out for the EU and Germany overnight too, and both were similar to the US, showing a strengthening services sector and a stable or slipping factory sector.

However, German economic sentiment is definitely improving.

In Australia, the latest RBA minutes show clearly that they never considered pausing their string of rate hikes in their campaign against their stubborn inflation impulse.

And staying in Australia, job site Seek has shifted its guidance for its full-year revenue and profit to the lower end of the forecast range, as the pandemic-fueled hiring spree loses steam.

The UST 10yr yield starts today at 3.94% and up +8 bps from yesterday and its highest since mid-November. 

The price of gold will open today at US$1834/oz and down -US$7 from this time yesterday.

And oil prices start today little-changed US$76.50/bbl in the US. The international Brent price is still just over US$82.50/bbl.

The Kiwi dollar is at 62.2 USc, a tad lower than this time yesterday. Against the Aussie we are little-changed at 90.5 AUc. Against the euro we are lower at 58.3 euro cents. However that all takes the TWI-5 below 70 for the first time since November, now at 69.9.

Bitcoin has stayed up over the US$25,000 level today and is now at US$25,243 and up +0.9% from this time yesterday. Volatility over the past 24 yours has been modest at +/-1.9%.

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.

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.

And today we lead with news the Australian labour market is now shedding jobs in an unexpected development.

But first, US jobless claims came in almost exactly as expected at +255,000 last week so there are now 1.95 mln people currently on these benefits. This 'canary' metric isn't yet showing the expected labour market shift to tougher conditions.

However, American producer prices rose in January by +6.0% from a year ago, which was a lesser rate than in December but not the pullback markets were expecting. The annualised rate between December and January was at a more than +8% rate however and the most in seven months, so inflation isn't beaten in this data and it maintains pressure on the Fed. Equity markets fell after this data. Bond yields rose.

And that is despite a very weak factory survey from the Philly Fed's heartland manufacturing area. It was an unexpectedly sharp and deep retreat with weaker new order levels.

American housing starts fell in January from year ago levels and from prior month levels to a 31 month low, but new building consent levels were unchanged from the prior month even if they too are down steeply from a year ago. Both metrics were pretty much in line with what was expected however.

Officially, prices for new houses in China fell -1.5% in January from a year ago. But given this market is in the doldrums with few sales (and low demand), it is doubtful this tells the real story. Re-sales are probably harder hit, with official data showing only six of 70 large cities recording prices the same as or higher than the same month last year. This is unusually low for them. A private survey showed that these sales volumes fell -14%.

In Hong Kong, their population decline is easing. The city’s 7.3 mln population fell by a net -12,900 people in the second half of 2022, down from a decrease of -55,400 in the first six months. The total 2022 decline is less than originally feared, but it is unusual.

Australian consumer inflation expectations are proving sticky. The latest Melbourne Institute survey shows them at 5.1% and while this is down from 5.6% in January, it has now been a year where it has oscillated between 5% and 6%.

In Australia, their labour market is wavering. It shed workers for the second month in a row in January, in a sign the nine consecutive official rate rises are starting to bite. They were expected to record +20,000 new jobs added but in fact they lost -11,500 jobs. Their unemployment rate rose to 3.7% (from 3.5%), adding 21,900 to the jobless rolls.

Aussie tourism has also recovered strongly, quickly. It is now back to 75% of its pre-pandemic levels, and back to full 2015 levels. Kiwis are the largest group visiting. New Zealand is also their largest destination, but that was from where only 17% of all Aussies returned.

Global container shipping freight rates edged down again last week to take them -27% lower than the ten year average. Bulk freight rates are in the doldrums too and now threatening all-time lows.

The UST 10yr yield starts today at 3.84% and up +4 bps from yesterday. 

The price of gold will open today at US$1841/oz and up +US$3 from this time yesterday.

And oil prices start today back up +US$1.50 at just on US$79/bbl in the US. The international Brent price is now just under US$85.50/bbl.

The Kiwi dollar is unchanged at 62.8 USc. Against the Australian dollar we are softish at 91 AUc. Against the euro we are also softish at 58.7 euro cents. That all means our TWI-5 starts today back at 70.5 and marginally.

The bitcoin price is now at US$24,969 and up a very strong +9.6% from this time yesterday. It is pushing towards the US$25,000 / NZ$40,000 levels quickly now which we last had eight months ago. Volatility over the past 24 hours has been extreme at +/- 5.5%.

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 I'll be back again on Wednesday.

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 there is more evidence we are in a high inflation period even as economic activity sags.

Last week we noted a rise in American mortgage applications, but this week they fell back and hard and to their lowest level of 2023. So no light at the end of the tunnel of the US housing market yet. Benchmark mortgage interest rates rose to 6.39% plus points

American retail sales grew by more than expected in January in a sign that consumers' willingness to spend may be holding, even rising, helped by their tight labour market and possibly by a slight easing of inflation expectations. They were up +6.4% from a year ago, the same as CPI inflation in the period. This is the first time these gains have matched CPI in four months. This data won't encourage the Fed to change course.

Business activity continued to decline in New York State, according to firms responding to the February Empire State Manufacturing Survey. But the slippage was very much less this month that expected.

US industrial production rose but at a disappointing rate, less than expected. It is now only +0.8% higher than year ago levels, hardly a measure of strength. But it has been held up by surprising strength in business capital goods. Boardrooms are positive places, it seems. Households not so much.

In Canada, January housing starts sagged a little but this is after a strong run over the past two year so perhaps should not have been the surprise it was. Certainly the overall Canadian housing market is in the doldrums so rising new home sales can't be sustained.

In China, it is emerging that Beijing has been worried about sagging demand in their economy for a few months, and President Xi has exhorted his officials to bring in “more forceful measures” to expand domestic spending. Also promised more are favourable policies to support private and foreign businesses. Details of the new emphasis in December were only released overnight.

Meanwhile it has been revealed that China's renewable energy sector is now larger than its coal sector. New additions to solar power generation fueled the jump in 2022 as they look set to meet ambitious carbon emissions goals

India merchandise exports came in lower in January, but then again so did their imports, so their January trade deficit shrank. All this data was less than expected, perhaps pointing out that the global trade environment isn't a source of rising demand any more. But India's service exports are growing, and strongly.

British CPI inflation is staying very high and was +10.1% in January, even if that was lower than in December and slightly lower than expected.

In Australia, under-fire-from-politicians RBA Governor Lowe has been testifying in Canberra before politicians and said he won't be resigning. Further he rarked them up, reported saying "There is a risk that we have not yet done enough with interest rates.”

Staying in Australia, regulator ASIC is targeting predatory lending, and dodgy insurance pricing as a priority. It has laid 173 criminal charges in just six months.

The UST 10yr yield starts today at 3.80% and up +5 bps from yesterday. 

The price of gold will open today at US$1838/oz and down -US$11 from this time yesterday.

And oil prices start today down another -US$1.50 at just on US$77.50/bbl in the US. The international Brent price is now just under US$84/bbl.

The Kiwi dollar is down another -½c today, now at 62.8 USc. Against the Australian dollar we are down -¾c at 91.1 AUc. Against the euro we are softer at 58.8 euro cents. That all means our TWI-5 starts today back at 70.5 and down -20 bps.

The bitcoin price is now at US$22,776 and up another +3.3% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.1%.

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 will do this again tomorrow.

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 American inflation is in the spotlight this week and will set the tone for markets worldwide.

But first up in China, we got an indication of just how serious Beijing is to restart their economy after the pandemic. China's banks extended +¥4.9 tln in new yuan loans in January, well above market expectations of +¥4.0 tln and the largest amount of new loans ever. It is a monumental amount of new lending for just one month, +NZ$1.15 tln and for perspective for all of 2022, the approved a record +¥21.3 tln. In just January 2023 alone it raised that by almost a quarter! They aren't doing things by halves here and won't die wondering.

China also reported January inflation at a +2.1% rate although the rise from December was at an annualised rate exceeding +9%. Still, this was very much as markets expected. The producer price deflation however seems to be staying minor.

That is not the case in Japan where January producer prices came in +9.5% higher than a year ago (as expected), although in the December to January period they vanished.

And staying in Japan, they are about to get a new, and somewhat unexpected Governor of their central bank. He is said to be "Japan's Ben Bernanke". The government's preferred candidate declined the promotion and the actual nominee has analysts searching for his likely policy preferences.

India released December industrial production data and that revealed a solid if 'modest' rise in the context of what they had in the rest of 2022.

In the US, the widely-watched University of Michigan consumer sentiment survey jumped to a thirteen-month high and beating market forecasts. It is just another brick in the evidence pile that a recession is some ways off yet.

On Wednesday, we get the January CPI data and it isn't expected to dip much. It was running at a +6.5% rate in December and is expected to dip to +6.2% in January. But maybe the December to January rate will have moved up at a slower pace, possibly less than a +5% annualised rate. Anyway, markets will be focused on this American CPI data for much of the week.

Across the border, the Canadian economy added +150,000 jobs in January, the most since February 2022 and much more than the market expectations of just a +15,000 increase. It is another impressive Canadian economic metric.

Meanwhile, the Canadian loan officer survey reported improved lending conditions. In fact their non-housing lending conditions turned positive for the first time since 2020 when monetary conditions were much looser.

In Australia this week, they will release their labour market data on Thursday and it is expected to be positive (adding +20,000 new jobs). But this news will probably be overshadowed by the central bank's governor giving testimony at their Federal parliament to a largely unsympathetic audience who wants to know why he has turned suddenly hawkish. His seven year term is up in September 2023 and it is increasingly unlikely the new federal Labor Government will reappoint him.

The UST 10yr yield starts the week at 3.74% having risen +21 bps last week. 

The price of gold will open today at US$1866/oz and up +US$3 from this time Saturday.

And oil prices start today unchanged at just under US$80/bbl in the US. The international Brent price is now just over US$86/bbl.

The Kiwi dollar is still just under 63.1 USc. Against the Australian dollar we are little-changed at 91.2 AUc. Against the euro we are also unchanged at 59.1 euro cents. That all means our TWI-5 starts today at 70.6 and actually very little-changed over the past week.

The bitcoin price is now at US$22,025 and up +1.5% from this time Saturday. Volatility over the past 24 hours has remained modest at +/- 1.1%.

We trust you remain safe during Cyclone Gabrielle's landfall.

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 will do this again tomorrow.

After their Government's "clumsily conceived and executed lurch" away from its zero-Covid policy, the Chinese people are "back to work with real energy," says David Mahon.

Mahon, the Beijing-based Managing Director of Mahon China Investment Management, spoke to interest.co.nz in the latest episode of our Of Interest podcast.

"China has to come some distance still to get away from the fear of this virus, the fear it may return. I'm sure that when we get into the autumn there'll be considerable concern amongst a lot of people. Nonetheless China has come through this reasonably well. People are back to work with real energy. They might be a little nervous, they will wear masks on public transport...but people are working, people are very keen to be back at work. Production has kicked in. The Chinese economy is beginning to really move again. So from that measure people have gone back to what they now perceive as a normality," Mahon says.

In the podcast Mahon talks about his recent traveling experience in China including differences in rural and urban areas, the impact from the spread of the omicron Covid variant, and a perception in parts of China that they've been failed by their leaders with public confidence needing to be re-earned. He also talks about what banks are being told, his expectation for the property sector this year, why he sees a year of relative economic strength, and gives his take on changes at the top of the political pyramid following the 20th national congress of the Chinese Communist Party in October.

Mahon also talks about China's relationships with the United States and Russia, suggesting the relationship with the US is "bad and getting worse," and that there's "fury" in the Chinese administration over Russia both initiating a war in Ukraine, and that it has gone on for so long.

Overall he says the "trauma" of Covid has been considerable, but a positive is it's leading to more challenging of authority from the general population, in terms of an attitude of "show me the facts here, tell me why this is something I should comply with."

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.

And today we lead with news inflation's track has everyone's attention everywhere.

But first, US jobless claims rose last week by +235,000 which was a small but significant rise and might signal the start of a weakening labour market there. And it was more than expected. Many will no doubt say the shift is too small to be significant, but it is a turn from the long string of declines in this leading metric. There are now 1.935 mln people on these benefits, also a minor increase.

Staying in the US, we probably should note that despite the high-drama headline-grabbing brinkmanship surrounding their debt limit and resulting "extraordinary measures", their bond markets remain very calm with Treasury issues trading normally and ignoring the Congressional theatre.

Meanwhile, the US Treasury says cloud computing poses risks to their financial sector. they say reliance on Amazon, Microsoft or Google could have broad consequences. They are flagging "all eggs in one basket" risks.

Fitch Ratings has revised its forecast for China’s economic growth in 2023 to +5.0%, from +4.1% previously, reflecting evidence that consumption and activity are recovering faster than initially anticipated after the authorities moved away from their “dynamic zero Covid-19” policy stance in late 2022.

China will announce its January CPI inflation later today and it is expected to be at +2.2%, and up from +1.8% last month.

Taiwanese inflation rose and by more than expected. To be fair, it is only from +2.7% to +3.0% in January so still very low in a global context. And their wholesale price growth actually fell in January from December, from a +7.1% rate to +5.6%. So the consumer price change may be just noise.

German inflation however came in lower than anticipated at +8.7% when a rise to +8.9% was expected (from +8.8%). Again, these are small shifts so probably not really indicating that inflation is shifting lower there yet. A work in progress considering it peaked at 10.4% in October. 

The OECD reckons real household incomes are now rising in much of their bloc, principally because real incomes are rising in most of Europe and the US. Exceptions however are Canada, and especially the UK where there is a fierce fall of real household incomes underway. Brexit isn't working out for them.

Global container shipping rates were little-changed again last week and remain well below their ten year average levels, and a huge drop from the pandemic spike. There is no sign of them turning up any time soon. Bulk cargo rates are also unchanged this week, and also low. Both are a sign that global trade is in a soft patch as big-power rivalries keep relations at arms length.

The UST 10yr yield starts today at 3.60% and down -8 bps from this time yesterday. Rate inversions are getting serious now.

The price of gold will open today at US$1873/oz and down another -US$2 from this time yesterday.

And oil prices start today little-changed at under US$78/bbl in the US. The international Brent price is now just over US$84/bbl. They fell away in between but are now almost back to yesterday's level.

The Kiwi dollar is up +20 bps at just under 63.5 USc. Against the Australian dollar we are up the same at 91.2 AUc. Against the euro we are up slightly more at 59.1 euro cents. That all means our TWI-5 starts today at 70.7 and +30 bps higher than yesterday.

The bitcoin price is now at US$22,535 down -1.7% from this time yesterday. Volatility over the past 24 hours has remained modest at +/- 1.5%.

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 will do this again on Monday.

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 central bankers are coming to realise they are just getting started in their inflation fight, and we are far from past the worst.

But first, US mortgage applications rose strongly last week from the prior week in an unusual burst. That still leaves them -37% lower than year-ago levels. But mortgage interest rates were little-changed with their 30yr fixed still at 6.18% plus points.

In late-released data yesterday, the American appetite for consumer credit slowed unexpectedly in December, rising a tiny +US$12 mln in the month, when a small +US$25 bln was expected. Their appetite for consumer credit is unusually restrained at present, perhaps because interest rates rises are making it unattractive. This comes despite a key optimism index improving sharply (well, getting a lot less pessimistic).

Fed officials continue to point out the upward pressure the strong US labour market is putting on inflation. One key voice, the NY Fed's John William, noted overnight that  policy interest rates were “barely into restrictive” territory at current levels. His comments are consistent with what Powell and others are saying.

The Reserve Bank of India raised its key repo rate by +25 bps to 6.5% during its February meeting yesterday. This was their sixth rate hike in a row, and comes amid signs that inflation is easing mainly because of food prices. It was a rate increase that markets expected.

The Turkish economy is facing new pressures from the earthquakes in the east of the country. Inflation had been easing recently, down to 'just' +58% pa but that 'progress' is now at risk. Their exchange rate has worsened to its worst ever. They just don't need these financial pressures on top of their struggling humanitarian disaster response.

In Australia, cost pressures, especially in their construction industry, are becoming intense. Pressure is on the renege on fixed price contracts. Major material suppliers leading the effort to raise prices across the board. Essentially, there is little evidence the RBA’s tightening cycle has dampened demand, and although they think they have been "aggressive", probably much more will be needed in Australia to defeat their growing inflation problem.

Ahead tomorrow, January inflation data from the EU/Germany and China will inform the view about whether any progress is evident globally.

The UST 10yr yield starts today at 3.68% and up +6 bps from this time yesterday. 

The price of gold will open today at US$1875/oz and down just -US$1 from this time yesterday.

And oil prices start today up +US$1 at under US$78/bbl in the US. The international Brent price is now just under US$84/bbl.

The Kiwi dollar is little-changed at just over 63.2 USc. Against the Australian dollar however we are lower at just under 91 AUc. Against the euro we are lower at 58.8 euro cents. That all means our TWI-5 starts today at 70.4 and soft from yesterday.

The bitcoin price is now at US$22,914 and again, very little-changed from this time yesterday. 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 will do this again tomorrow.

Kia ora,

Welcome to Wednesday’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 central banks are not yet done raising rates to quell inflation.

But first up today we can report a satisfactory dairy auction. Prices rose +3.2% in USD at this morning’s event on an overall basis with +3.8% rise for the dominant WMP product. Butter rose +6.6% and cheddar cheese was up +2.3%. SMP dragged however, unchanged. In NZD, the gain was magnified by the lower exchange rate, up a full +5.0%. This will be a relief as it comes after four poor or weak results, and is in fact the best result since early September 2022.

In the US, the slow but steady slide in retail sales gains continues, with same-store sales up only +4.3% last week from a year ago, and probably not keeping up with inflation.

You can see the trade consequences in the Logistics Managers Index (LMI). Growth is increasing at an increasing rate for inventory levels, inventory costs, warehousing utilisation, warehousing prices, transportation capacity, and transportation utilisation. But warehousing capacity and transportation prices are contracting. None of these levels are a special problem yet, but they are going in a tougher direction.

The American December trade deficit in both goods and services came in about what was expected, which was slightly worse that the November result. Still these deficits are still quite small in relation to the size of their economy even if they are at record nominal levels and make headlines. That is, the -US$948 bln deficit is about -3.8% of GDP. For New Zealand that same level is -5.0% and we don't have the advantage of having a reserve currency.

The US Fed boss was among a set of officials out commenting on the strong US jobs report, essentially saying they have more work to do to rein in inflation even if the 'disinflation' process has started.

Average cash earnings in Japan jumped +4.8% in December from a year ago, rising at the fastest pace since January 1997 and increasing for the twelfth straight month. A surge in special payments during the period helped fuel this jump that has rarely been above +2% since 1997. So far this surge hasn't encouraged the Japanese to spend more; household spending fell -1.3% in December.

Yesterday the Reserve Bank of Australia lifted its cash rate another +25 bps to 3.35% and said it sees more hikes ahead. They said the path to achieving a soft landing for the Aussie economy remains narrow. Most observers are now planning of a 4% cash rate in Australia by mid-year. They were not prepared for such a hawkish RBA stance.

Meanwhile banks will raise their mortgage rates and because this market is essentially on floating rates, the increase will flow through immediately and the stories about mortgage pain will grow. To ease payment pain, NAB subsidiary U-Bank is now offering 35 year loans. First home buyer borrowing is now at a five year low in Australia.

Australia posted a +AU$12.2 bln trade surplus in December in goods and services, extending its recent strong run, but even at that elevated level it was their 'smallest' in four months. Still exports were up a massive +21.7% from the same month a year ago, and imports were up +10.8% on the same basis. All this means they ended 2022 with a massive +AU$138 bln trade surplus, or +5.8% of GDP, and +13% higher than in 2021. (In 2021 it was +5.5% of GDP.)

The UST 10yr yield starts today at 3.62% and down -3 bps from this time yesterday. 

The price of gold will open today at US$1876/oz and up +US$9 from this time yesterday.

And oil prices start today up +US$3 at US$77/bbl in the US. The international Brent price is now just over US$83/bbl.

The Kiwi dollar has recovered somewhat and is now at 63.2 USc and up almost +½c from this time yesterday. Against the Australian dollar however we are lower at 91.1 AUc. Against the euro we are firmer at 58.9 euro cents. That all means our TWI-5 starts today at 70.5 and unchanged from yesterday.

The bitcoin price is now at US$22,980 and very little-changed from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.0%.

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 will do this again tomorrow.

Kia ora,

Welcome to Tuesday’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 we return from our long holiday weekend with the rest of the world delivering improved economic performances

The Chinese Lantern Festival has ended China's New Year celebrations and shows that the feared aggressive surge in infections did not hold back their re-opening. Hospitals and health services are swamped, but the relief drove Spring Festival travel and spending. However long this momentum will last is still an open question. And it seems likely the benefits will be spread unevenly across the country.

China's big state-owned banks are being opted into offering unsecured credit card loans for as low as 3.6% to try and keep the holiday momentum going. Worryingly for China, such lending is nowhere near where it was before the pandemic originally hit in early 2020. Mortgage rate cuts for new house buying are spreading too. Perhaps unsurprisingly in retrospect, mortgage loan growth in China was almost non-existent in 2022 (+1.5%, item #6). But that is a huge shift.

The private services PSI survey for China confirmed the official PSI rebound in their services sector in January. (Recall this same private survey did not confirm the factory improvement.)

The end of pandemic restrictions is restarting a migration of China's wealthy to move overseas taking their money with them. Canada is the most favoured destination but the shift to Singapore is substantial too. Other countries will get this flow too. A feature of the 2023 flows is the urgency that these migrants bring with their desire to leave.

Meanwhile, Hong Kong retail sales fell -0.7% in December on an inflation-adjusted basis, but that was a lesser decline that the -5.3% drop in November. For the whole 2022 year, sales fell -3.4% on an inflation-adjusted basis.

In the US there were positive surprises all over the place over the weekend. The biggest was from their labour market where the headline gain in non-farm payrolls came in very much higher than anyone expected, up +516,000 in January. That's its best January increase ever. Only a +185,000 gain was expected. And this data is from the usual "Establishment Survey" of employers. The data from the "Household Survey", which in the past has been less positive, is in fact even more positive this month, up +894,000 employed on the same seasonally adjusted basis. Unadjusted both surveys give a January level the best in more than a decade, probably longer.

Their unemployment rate is now its lowest since 1969.

Any way you look at this, it is strong. More people are in paid employment than ever before; either 160.1 mln in the Household Survey, or 155.1 mln in the employer survey (and the difference is probably unincorporated sole traders).

Also 'positive' in an economics way, wage growth is slowing. Average weekly earnings in January were up +4.7% from a year ago.

But the strong American results don't end there.

The widely-watched ISM services PMI reported a strong recovery in January, up from a small retreat in December. New order levels were the star here. The January level reports a healthy expansion again, and largely confirms the non-farm payrolls report. This is in contrast to the US Markit services PMI we reported earlier last week, which didn't show these gains; a rise to be sure, but that report was contracting still.

In Canada, housing sales in their largest city, Toronto (population 6.3 mln), "collapsed" to just 3100 in January, -40% below year-ago levels and prices down -20%.

In the EU, their producer price data didn't come down in December as it had trended earlier. In fact it rose unexpectedly, but 'only' at a +13% annualised rate from November, about half the year-on-year rate.

But German factory orders unexpectedly rose +3.2% in December from November, topping market forecasts of +2% and reversing a downwardly revised -4.4% fall in November. However, as positive as the December gain was, it is still -10% lower than year-ago levels.

Retail sales in Australia fell by -3.9% in December from November, unrevised from the flash data but reversing from a +1.7% rise in the prior month. This was their first decline in their retail trade in 2022 following eleven straight monthly rises.

In Australia, the value of new home loans for owner-occupied homes in Australia fell -4.2% in December from November, sliding for the seventh straight month and coming in worse than forecasts for a -2.75% decline. Refi is strong there however.

And here's an interesting factoid in the nationalist bragging rights corner; Australian GDP (on the up), is about to overtake Russian GDP ( which is falling now). Russia won't qualify for the G20 any more.

Air cargo volumes sagged in December and didn't get back to 2019 pre-pandemic levels as expected. And if it wasn't for strong North American gains the situation would have been a lot worse. China's weakness is still showing in this activity.

Passenger volumes are recovering with momentum, but are still miles below pre-pandemic levels even if the recent trends are strongly up. Again, the drag here is China, although nowhere, including North America, is back to the old normal.

The UST 10yr yield starts today at 3.64% and up a sharp +12 bps from this time Saturday. 

The price of gold will open today at US$1867/oz and up +US$5 from this time Saturday.

And oil prices start today little-changed, still at just under US$74/bbl in the US. The international Brent price is now just over US$80/bbl.

The Kiwi dollar is softer as the greenback surges. It is now at 62.8 USc and down another -¾c from Saturday. That's its lowest in a month. All commodity currencies are on the move down. Against the Australian dollar we slightly firmer at 91.5 AUc. Against the euro we are little-changed at 58.6 euro cents. That all means our TWI-5 starts today at 70.5 and down -20 bps from Saturday.

The bitcoin price is now at US$22,999 and down -2.6% from this time Saturday. Volatility over the past 24 hours has been modest at +/- 1.1%.

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 will do this again tomorrow.

Auckland's unprecedented flooding highlights the importance of climate adaptation finance and the potential for parametric insurance, says David Hall.

Hall, Climate Policy Director at Tohaand until recently Senior Lecturer in Social Sciences and Public Policy at the Auckland University of Technology (AUT), spoke to interest.co.nz for the Of Interest podcast.

Hall says in events like the recent flooding he feels "a sense of grizzly resignation" with what has been predicted "playing out before our eyes."

With the likelihood, as in post-earthquake Christchurch, for a long wait for people who've filed insurance claims due to flood damage to their property, Hall highlights potential for prolonged uncertainty as insurance claims are assessed.

Hall, who recently published a detailed paper on adaptation finance, suggests parametric insurance could complement traditional indemnity insurance. Parametric insurance is a type of insurance contract that insures a policyholder against the occurrence of a specific event by paying a set amount based on the magnitude of the event, as opposed to the magnitude of the losses in a traditional indemnity policy.

"So it could be the severity of the event. [For example], if a flood event reaches a certain level of precipitation, or if an ex-tropical cycle event reaches a certain threshold in terms of wind speed, or drought reaches a certain threshold. Then that trigger is hit and a payout is made. And then people can use that money in a multitude of different ways. They don't necessarily need to use it to pay for replacement or repair of the assets lost or damaged. They might choose to use it in order to relocate, for instance. And so not only does parametric insurance have the advantage of being quick, it also has the advantage of being flexible," says Hall.

"I don't think this is necessarily a replacement for indemnity insurance. But it could be a complement which could give people greater flexibility and certain comfort after events like this." 

He notes parametric insurance is used in Fiji.

"When Fiji gets hit by cyclones or similar events a trigger is struck and a small payout is made to small-hold farmers and so on who are dealing with the consequences of those events. It gives you quick settlement and a bit of liquidity," Hall says.

He goes on to say that parametric insurance products might work better for a public insurance scheme, rather than private insurers, such as EQC as it morphs into the Natural Hazards Commission.

In the podcast Hall also talks about the difficulty of measuring whether adaptation finance is money well spent, insurance retreat, the urgency for climate adaptation and the politics of it plus much more.

His fullAdaptation finance: Risks and opportunities for Aotearoa New Zealand report is here.

Hall was also a contributing author for the Australasia chapter in the Intergovernmental Panel on Climate Change (IPCC) report Climate Change 2022: Impacts, Adaptation and Vulnerability. Additionally And Hall was co-Chair of the Mayor's Independent Advisory Group for Auckland's Climate Plan issued in December 2020.

You can find all episodes of the Of Interest podcast here.