Fortunes vanish in China

Kia ora,

Welcome to Wednesday'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 worried about their tech investments and the upcoming earnings reports. And they are watching the China equity rout with alarm.

But first in the US, durable goods orders for June came in much weaker than expected. There was a +0.8% rise recorded from May, but a +2.1% rise was expected, and the May rise was +3.2%. If there is a silver lining, it is that non-defence order for capital goods rose faster, up +3.1%.

That key June data may have disappointed analysts, but consumers are feeling bullish, at least according to the widely-watched Conference Board survey. It is now at a 17 month high so back to pre-pandemic levels.

And no-one told the survey respondents in the Richmond Fed district either who reported strong employment gains in July and continuing high levels of new orders - and their June survey results were revised sharply higher. Cost and pricing pressures remain very elevated.

The American home ownership rate fell marginally to 65.4%. This rate has been on an upward trend since peaking low at 2015 (although it did spike up in 2020 during the pandemic). The New Zealand home ownership rate is currently 64.5%.

Across the Pacific, Chinese industrial profits are up strongly in June, up +45% above the pre-pandemic level in June 2019, an encouraging result after more concerns about a loss of economic momentum there.

In South Korea, they have recorded their fastest economic growth in a decade with their economy expanding at a +5.9% rate in the June quarter. Private consumption lead the way but spending is expected to slow as their pandemic fight grows harder.

The IMF has updated its global economic forecasts for 2021 and overall they are unchanged at a +6.0% expansion this year and a +4.9% expansion next year. But there are offsetting revisions with the US revised higher and "emerging Asia" revised lower. The US is now expected to expand +7.0% in 2021 and +4.9% in 2022 in their upgrade. China will expand +8.1% in 2021 and +5.7% in 2022 in their downgrade. But the big downgrade is for India which the IMF says will now expand +9.5% and +8.5% in 2021 and 2022 and making their recovery from 2020 pretty modest. (Neither New Zealand nor Australia get any mention in this report.)

In Australia, their Treasurer is hedging his bets all of a sudden. After saying the expected Q3 economic shrinkage will be a one-off, he is now clearly worried that Q4 could shrink too, pushing Australia into a second recession in two years

On Wall Street, the S&P500 has turned very risk-off in afternoon trade and is down -0.7% so far. Overnight, European markets were down -0.6% overall. Yesterday, Tokyo rose another +0.5% on the day. However Hong Kong shed another huge -4.2% on the day, and Shanghai shed -2.5% in continuing major sell-offs. That is an -8.2% fall in just two days in Hong Kong and -4.8% in Shanghai. The ASX200 ended yesterday up +0.5%, while the NZX50 Capital Index dropped -0.7% in its Tuesday trade.

The UST 10yr yield starts today at just on 1.24% and a -3 bp drop. 

The price of gold is now just over US$1802/oz which is back up +US$3 from this time yesterday.

Oil prices have slipped by -50c and in the US they are now just under US$71.50/bbl, while the international Brent price is still just under US$73.50/bbl.

The Kiwi dollar opens today just on 69.6 USc and -40 bps lower than this time yesterday. Against the Australian dollar we are -30 bps lower at 94.5 AUc. Against the euro we are -50 bps lower at 58.8 euro cents. That means our TWI-5 starts today at 72.5 and a big backslide.

The bitcoin price is now at US$37,790 and falling -3.7% since this time on yesterday and taking the top off yesterday's big move higher. Volatility in the past 24 hours has been extreme again at +/- 5.7%.

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.