China pivots from pandemic control to economic repair

Economy Watch

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.

Today we lead with news China is scrapping their tough pandemic restrictions as the economic toll mounts. It was a broader back-down than expected as their stagnant economy now demands remedies.

But first in the US, mortgage applications and mortgage interest rates fell last week in an extended retreat reflecting a weakening of an already weak housing market.

However, there are signs in the US that holiday season retail sales may not be as weak as feared. Many retailers are embracing their higher inventory levels and see it as a competitive advantage. Consumers seem to be responding.

In Canada, their central bank raised its policy rate by +50 bps to 4.25% earlier today. It is also shrinking its balance sheet in a continuing tightening phase. However, it has opened the possibility that they may be near the end of their rate hike cycle for now.

In Beijing, their National Health Commission set out 10 new measures, less than a month after it started the reopening process with 20 guidelines for officials to minimise social disruption. Despite a buildup in expectations in recent weeks, markets appeared to be taken aback by how far-reaching these moves were. An initial rally fizzled as investors worried about a spike in infections and the chaos that might result from such sweeping changes.

Separately, Chinese exports dived by nearly -9% in November from a year ago. Their imports fell more than -10% on the same basis. Both were results far worse than expected, and far worse than the falls recorded in October. This was the second straight month of decline in shipments, amid weakening global demand due to high inflation and as production disruptions lingered.

China's official foreign reserves rose in November however, buoyed by a rise in the USD and rising asset values in the month.

In India and as expected, their central bank raised its policy rate by +35 bps to 6.25% late yesterday. It was seen as a hawkish shift in policy.

In Australia, their economy expanded +5.9% (real) in Q3-2022 from Q3-2021, but only +0.6% of that was in the September quarter, and that was less than was expected. Nominally, their dollar rise was +13.1% from a year ago, but the Q3 weakness was very pronounced in this nominal data.

One of the most striking parts of this GDP release is the level of embedded inflation it reveals. Household prices are rising at an +8% rate in Q3 (+2.0% q-on-q), and wage inflation is running at an even faster +10% rate (+2.6% q-on-q)

The UST 10yr yield starts today at 3.44% and down -12 bps from this time yesterday.

The price of gold will open today up at US$1783/oz and up +US$12.

And oil prices start today down another -US$1.50 from this time yesterday at just on US$3/bbl in the US while the international Brent price is down to just over US$78/bbl.

The Kiwi dollar will open today at 63.6 USc, and again a little firmer than this time yesterday. Against the Australian dollar we are also firmer at 94.7 AUc. Against the euro we are at 60.6 euro cents and up slightly. That all means our TWI-5 starts today at 72.2 and up another +30 bps overnight.

The bitcoin price is now at US$16,812 and down -0.9% from this time yesterday. Volatility over the past 24 hours has modest at just +/- 1.3%.

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.