China gets a hand up from US strength


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Kia ora,

Welcome to Monday's Economy Watch where we follow the economic events and trends that affect New Zealand.

I'm David Chaston and this is the International edition from

Today we lead with news China's recovery is now being aided by the recovering US economy.

In China, a private survey of their services sector brought some better news for them, and better than the official survey. Their services sector is expanding more vigorously than the tame levels we have seen recently. This is more like other international results, and China's service sector steeper increase is based on its strongest upturn in sales for five months. A quicker rise in employment is also helping to ease capacity pressures. And like other surveys, these improvements come at the same time costs are rising much faster than we have seen for months, even years.

Chinese exports also rose an impressively, up a sharp +9.5% in April from March and up +31% year-on-year. That is better than expected; the world is buying. But their imports fell -2.8%, and one reason is they are finding it hard to buy semiconductor chips. They are also not buying coal. In fact coal imports dropped -20% in April from March and -30% less than a year ago. They ran a +US$28.1 bln surplus with the US in April, and not down noticeably from previous months as American demand recovers strongly. This same data records a trade deficit with New Zealand, and a -US$9.6 bln deficit with Australia in April - despite their political tensions.

In the US, there was a big surprise in their labour market data released over the weekend for April. They added just +266,000 new jobs in the month, a surprisingly low number that is far below the +978,000 that analysts had expected, and a sharp drop from March’s pace. Their jobless rate shifted up to 6.1% when a 5.8% rate was expected. Their participation rate however rose to 61.7% as more people moved into their labour market. It is a result being looked at sceptically, especially given all the other indicators that show a strong recovery. Neither the equity nor bond markets reacted to the miss (and it is a big miss), and the US dollar dipped only marginally.

Another labour market metric helped ease the shock - US labour productivity rose sharply in Q1-2021. Essentially output (up +8.4%) rose much faster than labour hours (up +2.9%) or wages (up +5.1%). This level of output per hour is the highest ever recorded, and the year-on-year gain is the fastest since 2004.

The growth of consumer debt in the US was modest in March. It rose +US$26 bln and about what was expected. That is +7.1% higher than a year ago, but that is distorted somewhat by the pandemic. Compared to March 2019, it is up just +0.9%.

And we should note that the US Fed balance sheet is no longer being expanded. It's not tapering either, but Fed QE is now just at the level either additions are expiring. They are not priming the pump anymore.

But the US Treasury is. Over the past week they have raised +US$44.1 bln in bond issues.

Interestingly, the April jobs data in Canada wasn't flash either, with a shrinkage in employment and one that was more than expected. Perhaps the unusually strong, unexpectedly strong March data weighs here, averaging out a reasonable gain over the two months. Lockdown uncertainties may be another reason. Whatever the reasons, they have a jobless rate of 8.1% now and that is still distressingly high.

In the UK it turned out the SNP won big but just short of an absolute majority. With its pro-independence partners (the Greens), it is pushing ahead with a second independence referendum. It is not something London can really stop given it campaigned on an 'exit' from the EU as a sovereignty issue. It seems the Scots also want 'sovereignty'. With the customs border in Ireland now at the coast, and the strong prospect Scotland will cede, there won't be much 'united' in the United Kingdom soon. And the bits being hived off are joining back up with the EU.

In Australia, the RBA issued its Statement on Monetary Policy on Friday. They are watching the large bulge in household bank accounts, wondering how those households will use them when the fear of the pandemic eases. Those collective decisions will determine how the central bank reacts with monetary policy changes as they try to find the new 'normal', and more importantly, when. They are expecting a jump in inflation to 3.25% in Q2-2021 but then moderating quickly. They see economic growth up +9.25% in Q2-2021, but with a positive echo later to +4.75% in by December and +4% this time next year. But despite all this positivity they are not expecting pay packets to grow as quickly, and probably not until 2024.

And the value of all Australian residential real estate has now topped AU$8.1 tln and up +14% in a year, up +28% in two years. In fact at this level it is more than AU$1 tln higher than the total value of the ASX, plus all their super funds, plus all their commercial real estate, combined.

And it is worth noting, even though it isn't really 'new', commodity prices for copper, aluminium, nickel, zinc, iron ore and coal all rose sharply at the end of last week.

The UST 10yr yield starts today at 1.58% and down -2 bps from where it ended in New York last week.

The price of gold starts today at US$1831/oz and that is up just +US$1 since this time Saturday.

Oil prices start the week at just under US$65/bbl in the US, while the international Brent price is still at US$68/bbl.

The Kiwi dollar opens today at 72.8 USc and little-changed over the weekend. Against the Australian dollar we are still at 92.8 AUc. Against the euro we are still at 59.9 euro cents. That means our TWI-5 starts the week at 74.2.

The bitcoin price is now at US$57,537 and -2.4% lower than this time Saturday. Volatility in the past 24 hours has been a high +/- 3.0%.

You can find links to the articles mentioned today in our show notes.

And get more news affecting the economy in New Zealand from

Kia ora. I'm David Chaston and we’ll do this again tomorrow.

544 episodes