Stresses in China grow

Economy Watch

Kia ora,

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 that is second tier today ahead of a string of key data releases. But there are many interesting bits today all the same.

First in the US, a national NY Fed survey of consumer expectations in July showed medium term inflation expectations are falling. The three-year-ahead inflation expectations fell by 0.6 percentage point to 2.3%, hitting a new series low since the survey’s inception in June 2013. Median one- and five-year-ahead inflation expectations were unchanged at 3.0% and 2.8% respectively. The labour market expectations were essentially unchanged too with consumers not expecting any significant rise in unemployment.

USDA's August WASDE revealed that they will have record output and yields for both soybean and corn this season although wheat production there will be down marginally. But they expect world wheat production to be up. Climate stress is not reflected in this global assessment of food production, yet anyway, even if global rice production is seen easing, but only by -0.1%. Lower Vietnam production is the reason.

US beef production will be lower they say, made up by imports. US milk production is easing off slightly but they still expect to be active in butter and cheese exports and they think those will rise.

In Canada, building consents were expected to rise more than +5% in June from May after a sharpish -12.7% fall in May from April. But that did not happen. In fact the June fall was down almost -17% from a year ago. It is rather a grim set of data for this sector.

In China, and although never far from the surface of Beijing concerns, demographic forces have moved them to act on the long awaited raising of their retirement age. The average life expectancy is now 78 years, but local males can claim their 'pension' at 60. For women it depends on their job, but it is as low as 55 years for them. Fast-shifting demographics mean the working aged population is down to 68% and falling. Ten years ago to was near 75%. (NZ is 59% currently.) Details are awaited but they may implement a +3 or +4 month-per-year rise in their retirement age, which would be quite a fast change.

And although they are not reported locally, it appears strikes and labour unrest is on the rise in China. Raising the retirement age when there are growing labour stresses isn't going to help sentiment.

Indian consumer inflation fell rather sharply in July and by a bit more than expected. It came in at 3.5%, down from 5.1% in June. (A year ago it was running at 11.5%.) This latest level is now below their central bank's mid-point in its target range of 4%, the first time it has undershot in almost five years. The reason for the fall is essentially because of food prices, and the reason foods prices fell to 5.5% from 9.4% in June is essentially because of year-ago base effects. So this easing of inflation will probably not last.

Meanwhile, the Indian industrial production expansion eased off rather sharply in the June data released overnight. It was up 4.2% from a year ago, sharply lower than May's +5.9% rise. +4.2% is still exceptional but clearly the rapid expansion is reverting to a more sustainable pace. Pharma product growth actually shrank.

The UST 10yr yield is now at just on 3.91% and down -3 bps from yesterday.

The price of gold will start today up +US$38 from yesterday at US$2468/oz which is closing in on its record high.

Oil prices are +US$2 firmer at just over US$78/bbl in the US while the international Brent price is now just on US$81.50/bbl. We should keep an eye on the Straits of Hormuz. Iran seems to have seized a Malaysian ship travelling through there in what could a portend flashpoint.

The Kiwi dollar starts today up +20 bps from this time yesterday at just on 60.2 USc. Against the Aussie we are also up +20 bps from yesterday at 91.4 AUc. Against the euro we are up +10 bps at 55.1 euro cents. That all means our TWI-5 starts today at 68.9 and up +20 bps.

The bitcoin price starts today at US$59,340 and down -1.6% from this time yesterday. Volatility over the past 24 hours has been moderate at just over +/- 2.5%.

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.