A 'bleak future' for debt investors?
Welcome to Monday'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 other than the New Zealand lockdown. We start this week with the bond market volatile, some key commodity prices wavering, and a stronger greenback.
But first, China’s February factory activity in has fallen back to its weakest expansion since the pandemic disruption a year ago - and that is per the official data. Its factory expansion is barely on track. Meanwhile, its service sector activity has fallen in the same way. This slip is perhaps more than just the Spring Festival disruption because exports orders fell back into contraction. But a small recovery is expected in March.
And official data points to a sizable rise in disposable incomes in China last year despite the adverse economic impacts of the pandemic. The average full-year disposable income in China in 2020 was ¥32,189 or about NZ$6900. This is an increase of +4.7% compared to 2019, or an inflation-adjusted increase of +2.1%. Given that their overall economic activity grew +2.3% in 2020, this is a lower share for workers.
Chinese house prices rose in January in most major cities and are up between +2.9% and +4.4% year-on-year in Beijing and Shanghai respectively.
China is grappling with its demographic issues and may update its retirement age policies soon.
And China continues to face higher food prices with notable rises for rice, corn and soybean prices since the end of the Spring Festival in commodity trading. But other commodity prices fell at the end of last week.
Japanese industrial production made a rebound in January, according to official statistics. They are now only down -5.3% year-on-year after a better than expected +4.2% rise from November.
Singapore's industrial production growth is also staying quite elevated in a pattern that has lasted for three consecutive months now.
India reported it was out of recession in its Q3-2020 GDP data, and analysts expect its Q4-2020 growth to be positive too. But that is likely to leave the overall 2020 decline exceeding -7%. However a swift growth recovery is now underway there.
In the US, all eyes are on inflation tendencies, the driver of some substantial global market pricing changes over the past week. And the US PCE, the US Fed's preferred measure of inflation, came in at +1.5% pa and higher than the expected +1.4%.
In the same data release there was an unusual spurt in disposable personal incomes, up +11.4%, and almost all drive by the January disbursement of the US$600 per person stimulus payments. And that drove an unusual rise in consumption spending, up +2.4% in a month.
In the US Congress, they are on course to pass the US$1.9 tln Biden stimulus plan, after a last minute roadblock to a minimum-wage increase. Given the good recovery underway anyway, there are voices that worry this may be overdoing it. This worry compounds inflation rise expectations.
And the US has changed policy and is now on board for a global digital tax arrangement being progressed by the OECD.
In his annual letter to shareholders, Warren Buffett says ‘Bonds are _not _the place to be these days’ (p5). He warns of a 'bleak future' for debt investors. His enterprises reported operating earnings fell -9% in 2020, largely because of an -US$11 bln write-down of his Precision Castparts business.
The Chicago PMI took a bit of tumble in its February result. It is still expanding fast, but the rate of expansion eased this month quite noticeably with a sharp drop in new orders.
The US January merchandise trade balance came in with another large -US$76.4 deficit with exports down -1.1% and imports up +3.8% from the same month in 2020.
In Canada, there is a growing consumer and official backlash developing over the use of "palm oil" products in dairy feed - a major issue for them as most herds are managed in barns.
While China is mulling an application to join the TPP, the new US administration says it will take its time with its own reassessment.
The UST 10yr yield is lower today, down -4 bps at 1.41% and retreating from the 1.56% it reached earlier last week.
The price of gold starts today holding at its sharply lower level of US$1736/oz.
Oil prices are soft today, down about -50 USc and are now at just on US$61.50/bbl in the US, while the international price is just under US$64.50/bbl.
And the Kiwi dollar opens at 72.3 USc and -¾c lower that this time last week. Against the Australian dollar we are unchanged at 93.9 AUc. Against the euro we are softer at 59.9 euro cents. That means our TWI-5 is now down at 74.
The bitcoin price is now at US$43,689 and down a sharp -8.5% from this time Saturday. There is a clear bias lower at the moment. Volatility in the past 24 hours is still very high at +/- 5.2%.
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. We will do this again tomorrow.