China settles in to a blah trend

Economy Watch

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 of generally modest and uninspiring economic data.

We start today with updates from China.

Their April CPI came in +0.3% higher than a year ago, low but not as low as expected and not deflation yet (which they had from October to January). In the circumstances they will be ok with this. But both been and lamb prices fell and quite sharply, not only from a year ago, but from March as well. Milk prices fell as well although by lesser amounts.

Meanwhile, Chinese producer prices fell and at a slightly faster rate than the -2.3% expected, down -2.5% from a year ago.

Also much lower than expected is new bank lending. This activity was far less than in March and far less than what was expected. To be fair, there is usually a retreat in April from March, but just barely achieving the April 2023 level will have been quite a disappointment, especially as Beijing is on record encouraging lending (especially to property developers). The analysts expected lenders to heed the signals, but it seems they ignored them. Overall credit came in with a rare contraction. And the April new yuan loan level is near the trough of levels we have seen since late 2017.

Foreign direct investment fell a sharp -56% on the year in the first quarter of 2024, according to official Chinese data. It rose +US$12.5 bln in March from February 2024, much lower than the +US19.7 bln rise in the same period in 2023, and the +US$21.5 bln in the year prior. Global business are still reluctant to invest in an economy grappling with weak internal demand, and veering into Party controls of business operations. Foreign companies made just US$10.3 bln in net direct investments lower than during the same period last year. It is a falling trend that started by Shanghai's COVID lockdown.

China's vehicle sales grew by +9.3% in April from the prior year to 2.36 million. This follows a +9.9% March increase. Sales of new energy vehicles jumped by 33.5%. But we can also see this current overall sales level is only at the April 2018 level, so the 'growth' only underscores how weak it has been recently. But for car sales, they don't have this on their own.

The coming week will bring updates on China's industrial production, retail sales, fixed asset investments, the house price index, and the unemployment rate for April. None of these are expected to show anything but modest changes or real improvements.

In Japan, household spending there dropped in real terms by -1.2% in the year to March, compared with market forecasts of a -2.4% fall, after a -0.5% decline in the prior month. It was the 13th straight month of declining personal expenditure, dragged by weak spending on housing, fuel, electricity & water charges. In contrast, expenditure for food, transport & communication, and education all rose.

Across the Pacific in the US, the widely-watched consumer sentiment survey by the University of Michigan fell in May and by more than expected. The driver was the expectation that future inflation will rise again and that unemployment and interest rates may all be moving in an unfavourable direction in the year ahead. But we should also note that May often delivers pessimist results in this survey and the current level is +14% higher than a year ago. Since June 2022 the trend has been rising and the latest result is not out of trend.

Global wheat prices rose to their best level since August after the important May USDA updated production and demand estimates. Rising production in the US, China, Australia and Canada is offset by falling output in the huge Russian regions, Ukraine, and the EU. Global corn and rice output is expected to rise. American beef production is expected to be lower as herds are rebuilt in 2024/25. And they have raised their forecast milk price.

Canada delivered its best jobs report in April since the start of 2023 with an increase of +90,400 new jobs in the month with a broad-based rise. But full-time positions increased by +40,100 while part-time jobs rose by +50,300. There are now 20.5 mln people employed in their workforce with a jobless rate of 6.1%.

Indian industrial production rose +4.9% in March, which was less than the expected +5.1% rise and lower than the February +5.6% rise.

The Australian federal budget will be released tomorrow (Tuesday) May 14 and more "pre-budget announcements" are being released. A big one over the weekend was that they will spend more than AU$11 bln on social housing initiatives to try and get on top of their housing crisis for low income people.

The UST 10yr yield is now at 4.50% and unchanged from Saturday.

The price of gold will start today down -US$8 from Saturday at US$2360/oz. It is on the rise again, mainly on Chinese demand, and heading back toward its mid-April all-time high. For reference it was US$2300 a week ago, so up +3.0% in the past seven days.

Oil prices have fallen slightly to just under US$78/bbl in the US while the international Brent price is now just under US$82.50/bbl. These are both the same levels of a week ago.

The Kiwi dollar starts today little-changed from Saturday at just under 60.2 USc. A week ago it was at exactly the same level. Against the Aussie we are also unchanged at 91.1 AUc. Against the euro we are unchanged at 55.9 euro cents. That all means our TWI-5 starts today just under 69.6 unchanged from Saturday but marginally firmer from a week ago.

The bitcoin price starts today at US$61,614 and up +1.9% from this time Saturday. Volatility over the past 24 hours has been low at just under +/- 1.0%.

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.