China stumbles again

Economy Watch

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.

Today we lead with news of the unavoidable reporting of a Chinese economic stumble.

But first up today, we should note that Fed boss Powell was speaking and said the three American inflation readings in the June quarter do "add somewhat to confidence" that the pace of price increases is returning to the Fed's target in a sustainable fashion. They were remarks that suggest interest rate cuts may not be far off for them.

In their real economy, the NY Empire State survey of factories wasn't particularly positive, although to be fair it was little-changed in June. And expectations in this survey continue to be quite positive however.

Indian goods exports in June were little-changed from a year ago at a modest US$35 bln, up +2.6% from the same month in 2023. Services exports rose +8.9% however. Services exports are at about the same value as for goods, in India.

China's economy faltered in Q2-2024, keeping alive expectations Beijing will need to unleash even more stimulus.

Despite expectations that CCP discipline would press China's Q2 GDP result to the party's target, in fact they published a much lower than expected growth result. The Chinese economy expanded +4.7% in Q2 from the same period in Q3, missing market forecasts of +5.1% and slowing from a +5.3% growth in Q1. It was the weakest yearly advance since Q1-2023, and comes amid their persistent property downturn, weak domestic demand, a falling yuan, and trade frictions with the West. Irt also comes on the opening days of the CCP "Third Plenum", a huge set piece of Chinese policy making. Real reform is not anticipated however.

Underscoring the real estate industry problems, China said new dwelling sales were -25% lower in June than a year ago. New house prices in 70 cities declined by -4.5% year-on-year in June, after a -3.9% equivalent fall in the previous month. It was the 12th straight month of retreat and the fastest pace since June 2015. Only one of those 70 cities recorded a year-on-year rise. None recorded rises for second hand home sales. Some cities are now recording -12% sales price falls.

China also said June retail sales were up +2.0% from the same month a year ago, up +3.0% in you exclude car sales. At least this is better than inflation, so it records 'real' gains.

And China reported that electricity production rose +2.3% in June from year-ago levels. It is crude, but this may be a better indicator of 'growth' than the official GDP data. Still, they claim industrial production rose +5.3% in June on the same basis. It seems unlikely unless they are making impressively large energy efficiency gains nationwide. (Maybe readers know how to reconcile these various data claims better than us? Please clarify for all in the comment section below.)

The EU reported May industrial production levels in May, and those fell -2.5% from the same month a year ago, down -2.9% in the Euro Area..

And perhaps we should note that the electrification of the world will require more copper than can be produced, according to a recent study. EV demand to meet 100% net zero by 2050 would need that. But if instead vehicle demand shifted to hybrids, there may be enough copper to achieve the goal.

In Australia, all eyes seem to be on how a major union, the CFMEU, turned itself into a bikie gang complete with standover tactics. This isn't 'news' as such, just that it is now in public discussion in efforts to clean out their leadership and culture.

The UST 10yr yield is now at 4.22% and up +3 bps from yesterday.

The price of gold will start today up +US$12 from yesterday at US$2422/oz.

Oil prices are down -50 USc at just on US$81.50/bbl in the US while the international Brent price is just under US$84.50/bbl.

The Kiwi dollar starts today sharply lower at 60.8 USc and down nearly -½c. Against the Aussie we are down at 90 AUc. Against the euro we are down at 55.8 euro cents. That all means our TWI-5 starts today at 69.5 and down -40 bps from this time yesterday.

The bitcoin price starts today at US$63,314 and up +5.4% from this time yesterday. Volatility over the past 24 hours has been high at just on +/- 3.2%.

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.