China tensions only cloud for booming factories

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By Interest.co.nz, Interest.co.nz / Podcasts NZ, and David Chaston. Discovered by Player FM and our community — copyright is owned by the publisher, not Player FM, and audio is streamed directly from their servers. Hit the Subscribe button to track updates in Player FM, or paste the feed URL into other podcast apps.

Kia ora,

Welcome to Tuesday'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 Interest.co.nz.

Today we lead with news the global factory expansion is getting stronger, but tensions with China are the main risk.

First in the US, Fed boss Jay Powell said the American economic outlook has brightened overall but is advancing more slowly for low-wage workers, underscoring the need for continued support from policy makers. "These longstanding disparities [matter] because they weigh on the productive capacity of our economy," he said.

That brightening is clear from two contrasting PMIs out overnight, but both are recording a strong expansion. The locally-watched one slipped back from an even stronger expansion recorded for March, with the April result well below expectations. But the internationally-benchmaked Markit one held its March levels in April. Both are now recording roughly the same expansion. New orders, including export orders are growing, as is employment. But prices are rising fast, mainly because inputs are in short supply.

Canada's factory PMI is expanding too, but at a more restrained pace.

In the EU, their manufacturing economy registered another stellar performance in April, with operating conditions improving at a rate that surpassed March’s survey record. The new April records are built on strong new order levels, and are across all the main countries.

Taiwan reported a booming factory sector - despite the drought, and despite the geopolitical risks and pressures. South Korea is expanding well still, but not quite at the Taiwanese pace.

In a stark contrast, the Singapore PMI is barely expanding.

But Australia is carrying on the pattern of fast-recovering factories. They have two PMIs out. The local one reported its best result since March 2018 and it third best since 2001. New orders remained very strong, but input costs are now rising fast and much faster than output prices. The internationally-benchmarked Markit one was also very expansionary, and its best improvement ever. They also report fast-rising costs however. The local one reports employment is a laggard, presumably because factories don't think these conditions will last. The Markit one found fast employment growth.

And staying in Australia, they have started a review on whether to force a Chinese company to sell a container terminal lease in the strategically important port in Darwin. This is likely to inflame the Chinese. And it comes the same day our Prime Minister delivered a blunt message to China on the importance of human rights to New Zealand at an Auckland business forum, one stridently rejected by China's ambassador to New Zealand. The tension is rising as Australia presses on defense issues and New Zealand presses on human rights issues. Trade is the lever China can pull. And we should note that the Philippines is also getting exasperated about Chinese claims and incursions into their territory.

Boil over risks are seeing more consideration being given to supply chain risks from excessive exposure to supply from Chinese sources.

Australia’s rapidly rising property prices have started to slow, with new figures showing price growth eased last month after hitting a 32-year high in March.

The UST 10yr yield starts today at 1.61%, down -2 bps overnight.

The price of gold starts today at US$1792 and that is up +US$23 since this time yesterday.

Oil prices are up +US$1 today at just under US$64.50/bbl in the US, while the international Brent price is just over US$67.50/bbl.

The Kiwi dollar opens today at 72.1 USc and up +½c since this time yesterday. Against the Australian dollar we are little-changed at 92.8 AUc. But against the euro we are also little-changed at 59.7 euro cents. That means our TWI-5 is now at 73.8.

The bitcoin price is now at US$58,052 and up +2.0% since this time yesterday. Volatility in the past 24 hours has been moderate at +/- 2.4%.

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.

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