China's slower expansion in spotlight

Kia ora,

Welcome to Friday'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 China's expansion is wavering and that is either a worry, or more realistic, depending on your perspective.

But first, US initial jobless claims came in at the expected level of +383,000 and unchanged from the prior week. There are now 3.1 mln people on these benefits which was a drop of more than -100,000 and a post-pandemic low as more people regained employment, and more people found their coverage expiring.

There were two American regional factory surveys out for July overnight. The US Philly Fed survey is still expanding at a healthy rate but less so. The New York Empire State survey surged higher to a new record level. Both recorded much higher input costs - and employment gains.

The US Fed's industrial production data for June wasn't so expansionary but maybe that will come when the July data is in. However for June total industrial production rose at an annual rate of +5.5% despite a sharp drag from vehicle manufacturing in the month (due to the shortage of computer chips and one that is spiking buyer demand). All this may sound positive, but it is still -3.7% lower than for June 2019, so no recovery yet to pre-pandemic levels.

In South Korea their central bank kept its official rate (0.5%) and settings unchanged, but it wasn't unanimous and a hawkish tone is evident there too. Markets expect a rate rise or two before the end of the year, and the official growth forecast is maintained at well above +4%. And all this is happening as the pandemic is still affecting them.

China’s economy grew by an annual rate of +7.9% in the second quarter of 2021 compared with a year earlier to post a +12.7% growth in the first half of the year. But this was slower than most analysts had expected (+8.1%) and the weakness probably came in the June month and carried on into July. Speculation is rising that Beijing will juice up more fiscal support. Retail sales and industrial production levels beat estimates but growth rates for both were lower than in Q1. Electricity production was up +7.4% from a year ago, but only +7.0% higher than in June 2019, probably a better indication of how their economic activity is tailing off.

In pandemic news, there are reports that China is wavering in its support for its own Sinovac vaccine amid widespread unease about its efficacy. It is expected to adopt the BioNTech alternative as a "booster shot".

New cases in Indonesia are now higher than new cases in India (and nearly as high as Brazil). The epicenter of the pandemic has shifted closer to us - and more importantly, Australia. In NSW there were 67 new cases yesterday, and 840 active cases there. In Melbourne, there were very few new cases (+2). But Melbourne is back into a 'short, sharp' lockdown.

In Australia, an additional +50,000 full-time jobs drove their jobless rate down to 4.9% in June, its lowest level in more than a decade, but Sydney’s prolonged lockdown is expected to drag on the eight-month hiring spree and it may not stay down for long. Worryingly, their underemployment levels are up. The New Zealand jobless level was 4.7% in March and the June data will be released here on August 4, 2021.

Through all this, the APEC meeting is going on in Auckland, on a virtual basis - and almost anonymously. But today there is an "informal retreat" by the leaders of the 21 countries involved - and that is interesting because Chinese President Xi has confirmed he will be involved (like everyone else) in an off-the-record Zoom call.

The UST 10yr yield starts today at just under 1.30% and down another -6 bps from this time yesterday. Long end rates are diving everywhere - except New Zealand. 

The price of gold is now just over US$1829/oz which is up +US$5/oz from this time yesterday.

Oil prices have fallen back again today but by less than -US$0.50 so in the US they are now just under US$72/bbl, while the international Brent price is now just under US$73.50/bbl.

The Kiwi dollar opens today just over 69.7 USc and a drop of more than -½c from this time yesterday. Against the Australian dollar we are unchanged at 94 AUc. Against the euro we are a little lower at 59.1 euro cents. That means our TWI-5 starts today down -50 bps at 72.6 although that is back to where it was a week ago.

The bitcoin price is now at US$31,289 and down -4.8% from this time on yesterday. Volatility in the past 24 hours has been high at +/- 3.2%.

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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 on Monday.