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 inflation stress is building worldwide and will have an increasing influence on elections and the ability of governments to hold on to office.

Firstly in China, the pandemic emergency is not improving - in fact it is getting worse in Shanghai. It is hard to know how bad it is elsewhere with a broadening clampdown on news reports. It might be concentrated only in Shanghai as it seems, but you would think the Chinese media would say so if that was the case. The risks to global supply chains are rising, not falling. The depth of their economic retreat isn't obvious. We are left seeking signals in oblique ways, like calls for 'helping hands'.

More directly, vehicle sales in China fell by -11% in March compared to the same month a year ago. Recall in February they rose almost +19% on the same basis, so the shift down is dramatic and the first drop of the year. It has clearly been induced by sinking consumer confidence in the face of lockdown pressures.

And house-buying is in the doldrums too.

And overseas money is starting to pull out of Chinese markets. Foreign investors sold a net -NZ$9 bln in Chinese stocks and bonds in Q1-2022, nearly the highest outflow on record. The amount isn't large, but the switch from large positives is. ESG issues weigh on Chinese investment, now it seems to have aligned itself with autocracies.

Japanese consumer confidence fell again and this survey is now at its lowest level in a year. Apart from the pandemic shock, we haven't seen such Japanese glumness since the GFC crisis.

But Taiwanese exports rose at a fast clip again, but now this is as expected and the latest March data didn't beat estimates. But in value terms, this was their best month ever and by a long shot, and nearly +5% more than the prior record set in November 2021.

Taiwanese CPI inflation is up to a 3.3% pa rate, which is fast for them and the highest in ten years.

The Indian central bank left its policy rate unchanged at 4% and its accommodative settings in place. But they are now talking about shifting to tighter settings soon, prioritising the inflation fight rather than growth. They are talking of 'tectonic' upward shifts in food prices (p86). Wholesale rates are rising and their 10 yr bond yield spiked on the commentary, hitting 7%.

In Russia, S&P has declared them in selective default on their foreign debt. That is because they used rubles to pay bond obligations and they were insufficient to meet the contracted obligation in US dollars.

The big global news is that food prices rose very sharply in March, pushing on up to all-time records. In fact the rise from February was the largest one-month jump ever, and the rise from early 2020 has been relentless and fast. All categories of food rose fast, but it was most noticeable for cereals which jumped +17% in one month alone. We have a looming global food crisis, one that will hit developing and emerging markets hard and return billions to poverty. An ex-UN food boss is urging calm, but that is necessary because a sense of panic is developing over this situation. It is worth noting that meat prices are not rising as fast as grain prices, not yet at least.

The USDA World Agricultural Supply and Demand Estimates (WASDE) released over the weekend backed that up. American supplies are stable, but the international situation has created raging uncertainty and sharply higher prices. Global stocks of wheat are at a 5-year low.

In the US, re-worked supply chains are inducing a faster run up in wholesale inventories. But it turns out this is still a minor influence - strong sales in a strong economy is the major reason those stock levels are up. It may have expanded at a +4% pa rate in Q1-2022, and faster since. The inventory/sales ratio has remained lower than normal and is still sitting near historic lows.

After a very strong expansion in February, the Canadian labour market expanded further in March although this time pretty much as expected. Their rapid shift from part time to full time employment was in evidence again this month. Wages only rose at a modest +3.4% pace however.

And we should note that Turkey's troubles are only getting worse. It now has a consumer inflation rate of 61% (officially, at least), and producer prices are rising at the rate of +115%. An iron grip will be needed there to avoid an explosion of anger and misery, and the problem in Turkey is, those suffering most supported Erdogan into power.

The first round of the French presidential election shows the country very split. The incumbent president seems to be getting about 30% of the vote, the far-right candidate about 24%, and the left's candidate about 20%. A second round will be required between the top two, and the left looks like it will swing to Macron if only to prevent Le Pen from a victory - in a scenario that has run many times in France.

The Australian election has been called - for about the last possible legal date, May 21. The opposition starts ahead, and the incumbent government is counting on another 'miracle' recovery. The opposition needs to gain seven seats in their 151 seat parliament to win. But if the incumbent government loses just one seat, it will mean a hung parliament. Cross-bench parliamentarians are a very odd bunch, given their even odder voting system.

At the end of last week in the US, there was another heady rise in benchmark bond yields, although things settled back at the close of the Wall Street Friday session. The UST 10yr yield will start the week at 2.70% so that is a +32 bps rise for the week. 

The price of gold starts today at US$1947/oz and +US$4 higher than this time on Saturday.

And oil prices are a little-changed today from Saturday at US$97.50/bbl in the US. And the international Brent price is now just over US$102/bbl.

The Kiwi dollar will open unchanged at 68.5 USc. Against the Australian dollar we are marginally firmer at 91.9 AUc. Against the euro we are still at 63 euro cents. That all means our TWI-5 starts today still just over 74.2 and -30 bps lower for the week.

The bitcoin price is up fractionally from Saturday and now at US$43,076 and a +0.7% rise. Volatility over the past 24 hours has remained 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’ll do this again tomorrow.