Soft economic data everywhere but company results stay strong

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 China is having trouble getting its economic mojo back. In fact most signals are suggesting they are slipping further behind.

But first, this coming week is a very busy one in the US. Not only will they release key labour market data (JOLTS, non-farm payrolls) and PMI data (ISM), they will also release their Q3-2024 GDP result (expect +3%), all this while some megacap companies release Q3 earnings results, any one of which could be market-moving.

Japan will release its policy interest rate decision this week. China will publish is official PMIs. And the EU will chime in with PMIs and its GDP result too.

Australia will release its Q3-2024 CPI result in Wednesday, expected to come in at 2.9% which would be lower than the 3.8% in Q2. The RBA next reviews its policy rate a week from today and all indications are that it will hold it at 4.35%.

Over the weekend there were two democratic election results of interest to us, and in both cases, long-governing parties were defeated. This wasn't unexpected however, although the results were a lot closer in both cases than pundits expected. In Japan, the current Prime Minister may be able to hang on by adding a third party to his current two-party coalition. In Queensland, the switch was clearer although not as brutal as was widely expected.

In China official weekend data showed that industrial profits were -3.5% lower in the nine months to September than in the same period a year earlier. This comes amid persistent weak demand, deflation risks, and their property downturn. But just looking at September alone, profits dropped -22% from the same month a year ago. So the bite is on. It seems unlikely that Thursday's October PMIs will be very encouraging.

Foreign direct investment into China for the year to September slumped too, down -30% from the previous year although on the year-to-date basis they favour that was a slight easing from the -31.5% fall in August. For the month of September, the inflow was +NZ$14.2 bln and a huge step down than the +NZ$540 bln that flowed in in September 2023. But at least it is positive.

Leading Chinese economist Zhang Yu has raised the alarm over falling consumption in the Chinese domestic economy. Consumption is under pressure even though Beijing seems to be making big efforts to boost it. In Q3-2024, retail growth came in at just +2.5%, while in the mega-cities of Beijing and Shanghai it turned negative in the months of July and August. He points out that domestic consumption's economic contribution ratio dropped to 49.9% in the first three quarters of 2024, as compared to 60.5% for the first half. That is a very rapid shift. Exports have held their growth level up so far, but that isn't continuing. The shriveling consumption puts China's economy in some sort of peril and Beijing seems to have no answers so far. They have used half of their support measures already. Hopefully the next half will work better.

Across the Pacific, American durable goods orders slipped slightly in September from August, but by less than analysts had expected. But that takes them -2.9% lower than a year ago. Capital goods orders retreated -6.5% year-on-year, but non-defense capital goods orders other than aircraft were higher (although only by +0.6%).

The University of Michigan consumer sentiment index was revised up in October from their earlier 'flash' result, marking a third consecutive month of rises and reaching the highest level in six months. And this same survey found little concern about future inflation, with expectations at 2.7% and that is its lowest level in almost four years.

The Dallas Fed's factory survey was much improved in October, its mildest contraction since the sag that started in May 2022. It was driven by a sharp improvement in production activity. However the recovery in new orders was much weaker.

A very well supported UST 5yr bond auction earlier today brought a median yield of 4.07%. But that was an unusually large rise from the 3.46% at the prior equivalent event a month ago. There was a two-year UST bond auction as well, also well supported but also at a median yield that jumped just as much.

In Canada, retail sales rose again in August mainly on the back of more optimistic car buying. While the overall gain is still low, it is a third month in a row they have reported a year-on-year rise.

The UST 10yr yield is now at just on 4.29% and up +4 bps today.

Wall Street earnings results for Q3 so far have stayed strong.

The price of gold will start today at US$2743/oz and down -US$5 from yesterday.

Oil prices are down a very sharp -US$4 at just on US$67.50/bbl in the US while the international Brent price is now just under US$72/bbl.

The Kiwi dollar starts today at 59.8 USc and unchanged from this time yesterday or Saturday. Against the Aussie we are up +30 bps at 90.8 AUc. Against the euro we are down -10 bps at 55.3 euro cents. That all means our TWI-5 starts today at just on 68.8, and up +10 bps from yesterday at this time, and from Saturday.

The bitcoin price starts today at US$68,821 and up +1.6% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.3%.

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.