Caution rules, over Delta's rise and China's slowing

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 investors are stepping back in the wake of the Afghanistan turmoil and a noticeable slowdown in China.

But in New York, the latest factory survey shows business activity continued to expand, though growth was markedly slower than last month’s record-setting pace. New order levels dipped but unfilled order levels rose as supply constraints don't show any easing. Prices paid and prices received both are expanding at record rates.

And better than expected private consumption along with better than expected capital expenditure both powered the Japanese economy to a better than expected expansion in the June quarter. This growth comes after a weak Q1 when it contracted -3.7%, and dismissed the possibility Japan had slipped back into recession.

It's not all good however. Many analysts expect growth to remain modest in Q3, if at all, as state of emergency curbs re-imposed to combat a spike in pandemic infections weigh on household spending again.

There was more data released overnight confirming the slowdown in the Chinese economy. Tighter credit conditions are biting along with pandemic lockdowns in parts of their economy too. The recent flooding isn't helping either.

Chinese retail sales in July significantly missed expectations, rising +8.5% from a pandemic affected July 2020 and only +7.2% above July 2019 which for them is quite the come-down. Industrial production turned in a similar big miss.

Electricity production was up +12% from July 2019 primarily from thermal power, nuclear power, and wind power which all grew rapidly in July, while hydropower's decline narrowed, and solar power also declined. The rising demand and rising supply pressure on electricity is putting a serious dent in China's production of aluminium. Aluminium prices are surging. Tiwai Point's deal looks like the bargain of the century now.

Chinese house price growth stalled in July, which will make their policymakers happy because they have been actively seeking to quell this housing speculation.

China needs to get this slowdown sorted because it is facing significant labour market pressure - and that is according to views at the top of the Beijing government. It now says it will prioritise employment with its fiscal and monetary policies while their labour market remains under pressure.

In an urgent law change late yesterday, NSW commercial landlords are now required to provide rental relief to tenants with annual turnover of up to AU$50 mln. Landlords there are not happy.

The UST 10yr yield starts today at 1.26% and down -2 bps. 

The price of gold has risen +US$7 from this time yesterday to US$1787/oz.

Oil prices are -US$1 softer from this time yesterday, so in the US they are just over US$67/bbl, while the international Brent price is just over US$69/bbl.

The Kiwi dollar opens today at just under 70.2 USc and marginally lower. Against the Australian dollar we are at 95.6 AUc. Against the euro we are at 59.6 euro cents, both little-changed. That means our TWI-5 starts today at 73.2 and still in the narrow range of between 72 and 74 we have been in for ten months now.

The bitcoin price has weakened slightly today and is now at US$46,501 and is down -0.1% from this time yesterday. Volatility in the past 24 hours has been moderate at just under +/- 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.