Fast demographic changes alter economic prospects

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 the economic recovery in China and the First World faces long-term demographic challenges that just got much more severe.

But first, the latest survey of American consumer sentiment, this one by the Conference Board, is much more upbeat than was expected. It rose sharply again in April, following the substantial gain in March, and is back to pre-pandemic levels. Consumers were more upbeat about their income prospects, perhaps due to the improving job market and the recent round of stimulus payments. Vacation intentions posted a healthy increase.

The next regional Fed factory survey, this one from the mid-Atlantic states, is solidly expansionary, but not more so in April than March. However, the standout feature of this survey was the sharp rise in inflation trends, with most of these rising costs being passed on to customers.

We should also note that the latest Q1-2021 growth estimates for the US are even more bullish than previously estimated.

There was another huge US Treasury bond auction today, this time US$62 bln of 7 year Notes. It was also well supported with $143 bln in bid tenders. The median yield was slightly higher than the last equivalent event at 1.25%.

Eyes are now turning to the imminent US Fed policy review.

The results of the 2020 US Census have been released, and most coverage centers on the political redistricting. But it also brings news that the US is suddenly growing older, with immigration limited and birth rates falling sharply. One of the great features of the US was its 'melting pot' demographics, something was set to give it a huge long-term advantage over a sharply aging and relatively poor China. But unless the 2020 trends turn around, the US will face the same demographic struggles as China, Japan, and the EU, and that is an unexpected development.

In China, they are readying their own census results - and that is expected to report its first population decline ever. And it will also likely report a sharp aging of their demographics.

And still in China, industrial profits at their major firms in March rose strongly again. Of course, the year-on-year comparison is pandemic affected, but the 2021 results are +23% higher than the 2019 results and so this is a very positive outcome.

China's Huarong Asset Management firm, the 'bad bank' in severe financial stress, repaid an offshore bond yesterday in full - but with funds loaned to it by state-owned ICBC. So Chinese officials are just kicking their endemic debt problems down the road.

In Japan, with their latest monetary policy review, the Bank of Japan seems to have given up on ever achieving inflation at their target 2%.

South Korea’s preliminary Q1-2021 GDP showed that their economy is now above its pre-pandemic size. The recovery gained momentum, helped by strong exports and a recovery in domestic demand. Despite expected headwinds (like the virus returning), South Korea is on track to be the first in this region to get back to normal monetary policy.

The iron ore price is still moving higher. Shipping rates are too.

In London, HSBC has reported a return to good profits after a year of painful restructuring. The bank is preparing to shift its headquarters back to Hong Kong as it prioritises its business in China.

The UST 10yr yield starts today at 1.62%, up +5 bps overnight. 

The price of gold starts today at US$1777/oz and that is down a minor -US$3 since this time yesterday.

Oil prices are still little-changed at just over US$62.50/bbl in the US, while the international price is just under US$65.50/bbl.

The Kiwi dollar opens today at just on 72.1 USc and a small slip since this time yesterday. Against the Australian dollar we are unchanged at 92.8 AUc. Against the euro we are slightly softer as well at 59.7 euro cents. That means our TWI-5 is at 73.8.

The bitcoin price is now at US$54,995 and up +1.8% since this time yesterday. Volatility in the past 24 hours has been moderate at +/- 2.6%.

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.