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 bank lending distortions are catching attention in both China and the US.

But first in the week ahead, all eyes will be on the American CPI data which comes out on Wednesday - and the following Fed speaker reactions. The US also releases retail sales data and PPI data this coming week along with a big sentiment survey. And the final big earnings reports are due for Q4. There will be the GDP result for Japan, CPI for India, and Australia will chime in with their January labour market update and the NAB January business sentiment report.

China is now on a full national holiday for a week (春节, Year of the Wood Dragon) and authorities managed to stave off a share market crisis before they closed in Shanghai (even if Hong Kong got the wobbles again on Friday).

In China, under official pressure banks are shovelling out the loans. Banks extended more than ¥4.9 tln in new yuan loans in January, a record high since comparable records began in 2004 and beating forecasts of ¥4.5 tln jump. Mortgages rose to ¥980 bln in new lending and corporate loans jumped by ¥3.86 tln. Meanwhile, "total social financing" which is a broad measure of credit and liquidity, also reached a record high level of ¥6.5 tln (NZ$1.5 tln), well above forecasts of ¥5.55 tln. But while the levels may be high watermarks, the growth isn't. In fact these expansions from a year ago are the least since 2004. That has led to calls to "do more".

In Japan, the Nikkei 225 Index jumped as much as 1.1% before settling only marginally higher at 36,897 on Friday, its highest level in 34 years as strong corporate earnings, a weakening yen and a dovish outlook on Bank of Japan monetary policy pushed the markets to these new heights. On Thursday, a Bank of Japan Deputy Governor said the central bank would not aggressively tighten its monetary policy even if it eventually decides to end negative interest rates.

In the US, the S&P500 closed above the 5000 index level for the first time. It was up +0.6% on Friday their time, up +1.4% for the week, and up +6% so far this year. And all this is in the face of rising bond yields which makes it a bit unusual. The Fed's 'win' in its battle against inflation while keeping employment growing is a key factor that profits remain robust. Investors seem impressed.

Meanwhile, lending by commercial banks to shadow banks ("Loans to nondepository financial institutions" in official language - line #26 in this data) topped $1 tln in January for the first time. It was up +12.2% in a year, although the big expansion came mid-2023. However, that surge caught the eye of the Fed who are watching for system risks from the big non-bank mortgage component.

In January, Canada added +37,000 new jobs in the month, a surprise because a decrease was anticipated. But +49,000 were part time positions and full time employment fell -12,000. Their jobless rate eased slightly on this data, also not expected. Unfortunately for them, their population grew faster than employment.

With China largely closed for its New Year holidays, commodity prices are likely to just meander along with little direction. But that won't stop chocolate prices racing higher on climate-related supply challenges. Cocoa prices were up +17% last week alone, to be up +42% so far this year alone, up +123% in a year and up +160% since this surge started in mid-2022. Chocolate is back only as a luxury item. Meanwhile sugar prices, which maxed out in 1975, aren't showing any similar acceleration.

Staying with commodities, the price of palladium fell below that of platinum for the first time since April 2018 as growing demand concerns and bets on stable supply weighed on the metal. The price of palladium is now at its lowest since mid-2017. Palladium (and/or platinum) is mostly used in catalytic converters for ICE cars.

Household spending rose +2.3% in December from a year ago in Australia. This was the smallest growth in household spending since February 2021. But that is before inflation was accounted for. Discretionary spending actually fell -0.6% (also before accounting for inflation). This data highlights how their cost-of-living crisis is affecting them.

The UST 10yr yield starts today at 4.18% and down -1 bp from Saturday. 

The price of gold will start today up +US$1/oz from Saturday, holding at US$2024/oz.

However oil prices are still at US$76.50/bbl in the US while the international Brent price is still just over US$81.50/bbl.

The Kiwi dollar starts today at just on 61.5 USc and marginally firmer that this time Saturday. Against the Aussie we are unchanged at 94.3 AUc, and a 14 month high. Against the euro we open at just over 57 euro cents and also firmish. That all means our TWI-5 starts today at just on 70.9 and at its 2024 highs.

The bitcoin price starts today at US$48,128 and up +1.1% from this time Saturday. And this new higher level is its highest since December 2021. Volatility over the past 24 hours has been modest at just on +/- 1.5%.

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.