Vacation briefing; China’s slowdown brings ‘multiple tools’ into play


Here is our summary of the weekend’s key economic events affecting New Zealand with news on the slowdown in China being addressed on several fronts.

China pulled the trigger on more generous credit expansion parameters. As expected, it cut its reserve ratio, this time by -25 basis points. After this reduction, the weighted average reserve requirement ratio of financial institutions is only 8.1% – that is, on average, their financial institutions only need 8.1 % reserves to support their lending activity. But in the grand scheme of things, it’s been a modest move so far.

What is far more impressive is its rush to get major infrastructure projects approved and started. They already have approved 32 projects worth NZ$120 billion for new transport, energy and high-tech business. In 2021, they approved 90 projects worth NZ$180 billion, so the pace is surprisingly faster in 2022. And the private sector is becoming regulatory incentive also. “Multiple toolsis now the tagline for how they are handling the downturn.

They need it now because the pandemic lockdown in Shanghai is about to cause a general commercial stall the. (Also see this and this.)

Container Freight Rates outside of China continue to fall. But bulk freight rates started to increase again.

Chinese house prices are said to be on the rise. But the latest data shows them falling in March from February in 38 of China’s 70 largest cities, though that doesn’t include Beijing or Shanghai. But that now includes Guangzhou. Over one year, the overall increase is now reduced to only +1.5% and a stall seems to be beginning. Separately, Property prices in Hong Kong have stopped rising and may also be falling now.

In Japan, update its demographic statistics to show that it has recorded its biggest drop ever. There were 125.5 million people in the country, down -644,000. Tokyo’s population fell for the first time in more than 25 years, and all prefectures recorded a decline except Tokyo. ‘Okinawa.

In the USA unemployment insurance claims increased slightly last week, but a growing number of people on these benefits have found jobs, taking their numbers to a record high of 1.57 million as their labor market continues to strengthen.

Even though car sales fell in March, retail sales everything else has grown at a very healthy pace. Overall, they were 7% above their levels of a year ago. Excluding vehicles, the increase was +9.4%. In fact, for the first quarter of 2022, non-vehicle retail sales increased by +13.3% compared to the same period a year ago. It’s more than inflation.

But these practical expressions of sentiment (jobs, retail sales) are not reflected in attitudes. A steady diet of news negativity is keeping sentiment low, although in its latest survey the much-watched University of Michigan survey begins to reflect a more optimistic sentiment, which “surprised” the investigators.

And this, despite the rise in US mortgage rates which continues the slowdown in mortgage applications. In reality a key measure has now reached 5% for its main mortgage interest rate in a prolonged sharp rise. Mortgage brokers say in fact, it is now at 5.13%.

WE industrial production increased again, up +5.5% year-on-year and March’s increase recorded a fifth solid rise in the past six months. The rise in production of consumer goods and professional equipment was actually quite impressive during the month, tipping an annual pace of around +15%.

And that was backed up by a good result in the New York Fed Regional Plant Survey where new orders and shipments rose sharply in March. Employment has also increased. But there was no escaping the high costs, which hit a record high.

Maybe part of that is building supply chain resilience. Business inventories rose a little more than expected and the inventory-to-sales ratio recovered slightly. But it remains at historically low levels, and is therefore not a sign of supplier stress.

But careful monitoring cargo monitoring service shows that the scum is coming out of their logistics industry.

In US financial markets, foreign investors bought more than $75 billion worth of US Treasuries, prolonging their buying spree. In reality global capital inflows in the butterfly grew February 2022 to the largest ever recorded for a February. Foreigners also bought $185 billion or all of long-term securities, also exceptionally high. Going the other way, they sold $25 billion net of shares during the month, but that cut January’s selloff in half.

In Europe, the The ECB left all its parameters unchangedprevented from returning to “normal” by the sudden rise in risks in Eastern Europe.

And there seems to be a consensus building in Europe that they can reduce dependence on Russian energy supplies much faster than they imagined just a month ago.

In Australia, their March labor market data revealed only minor changes. Employment rose by +17,900 to a new high of 13.4 million, below market forecast of +40,000 as full-time employment rose by +20,500 to 9,248,600 while the part-time employment fell -2,700 to 4,141,300. Their unemployment rate remained unchanged at 4.0%. Despite all the small gains, the total number of hours worked in their economy has dropped, and it’s not the first time. The March 2022 level is actually lower than the March 2021 level. Also, the total number of hours worked in March 2022 was lower than in February 2022.

Like the FAO, the UN is saying the Ukrainian crisis threatens to push up to 1.7 billion people – more than a fifth of humanity – into “poverty, destitution and hunger”. Ukraine and Russia provide 30% of the world’s wheat and barley, 20% of its corn and more than half of its sunflower oil. Prices are rising sharply now, and there is a direct correlation between rising food prices and social and political instability. They see a “perfect storm” that could devastate the economies of developing countries. There is no real evidence that the developed world has turned its attention to this impending crisis.

In addition, the IMF is meeting and is about to update its economic forecasts and financial stability analysis. They are widely expected to lower expectations for economic expansion, signaling that the world is entering a phase of stagflation.

The 10-year UST yield starts the week on the shoulders of Friday’s +14 bp gain at 2.83%. The UST 2-10 yield curve is still at +37 bps. Their 1-5 curve is still at +103 bps. Their 30-day-10-year curve is unchanged at +257 bps. Almost all the other minor curves are quite “positive” again. Australia’s 10-year bond is now at 3.03%. The ten-year Chinese government bond is at 2.82%. And the New Zealand government over ten years still at 3.43%.

This week will set the tone for international equity markets as a series of major companies report earnings. If weak, yield signals will aggravate a drop and a major price refix event could be triggered. If they are strong, it will be interesting to watch the price reactions to these yield increases.

The price of gold starts today at US$1974/oz and unchanged since Saturday.

And oil prices are also little changed, still at just over US$106/bbl in the US, while the international price of Brent is now slightly above US$111/bbl.

The Kiwi Dollar will open a bit firmer today at 67.6 USc with all the firming on Saturday. But against the Australian dollar, we are a little softer at 91.5 AUc. Against the euro, we also fell to 62.5 euro cents. All of this means that our TWI-5 today starts at 73.7 and has changed little.

Bitcoin price is down -0.8% from this time Saturday at US$40,089. Volatility over the past 24 hours has been low at just under +/- 1.0%.

The easiest place to stay on top of the risks associated with today’s events is to follow our Economic calendar here ».

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