Kia ora,
and welcome to Monday'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 news China is lashing out at criticisms by democracies.
But first on Wall Street, the Fed puchased more than US$½ tln in US Treasuries from banks last week alone to keep banking system liquidity up, as the usual sources in the repo market pulled back. While a US$½ tln level in a week isn't unprecedented, it is still very high and a third higher than the prior week. Exactly why the Fed needs to step in at these levels to keep the bank liquidity system functioning is a little unclear but it may just be a timing issue - or it may indicate the usual suppliers, fund managers, are tiring of very low returns and wary of rising US Federal government systemic risk. Certainly something to keep an eye on.
And another thing to keep an eye on; in Canada, the Chinese government warned them not to follow the American lead and formally back protesters in Hong Kong, saying such a move would cause "very bad damage" to already poor ties with Beijing. China is scrambling to ensure democracies know there will be a high economic price if they stand up for democratic openness. China is very sensitive to criticisims in the Canadian press and wants them suppressed by insisting on "right thoughts" and is backing that up with economic pressure.
And Australian democracy is under specific attack.
A record number of Hong Kongers turned out to vote yesterday in peaceful district elections that are seen as a referendum on the increasingly violent protests that have gripped the city for nearly six months. Early results show that pro-Beijing candidates are losing to pro-democracy candidates. If this trend is widespread, Beijing will be furious and more critical of the power of democracy.
In the US, their manufacturing PMI is marginally firmer but still quite low at 52.2. Their services PMI is also up a little but still even lower at 51.6. A reading of 50 is stagnation.
In Europe, these levels are even lower again, with the factory PMI at 47.1 (contracting) and their sevices PMI at 51.5. The combined picture is a stagnating 50.3. In Japan, they are also stagnating with a manufacturing PMI at 48.6, a services PMI at 50.4 and combined at 49.9. In Australia, their PMI has slipped from stagnation to contraction. And that applies to both their factories and service sector. (Just for the record, the New Zealand factory PMI is expanding at 52.6. while our services PMI is expanding at 55.4.)
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There has been more, probably pointless posturing by the presidents of the United States and China on their desire to sign an initial trade deal and defuse the tariff war. But scepticism abounds now. Certainly markets are ignoring this official talk and the S&P500 had a small loss for last week.
In the US, Bridgewater Associates, the world’s largest hedge fund, has bet more than US$1 bln that stock markets around the world will fall by March, according to a Wall Street Journal report.
In China, they have revised the size of their economy higher with a one-off Census adjustment that adds more than 2% to previous data. It is a revision that adds more than the entire NZ GDP to their data. Most of that was because their services sector was larger, now accounting for 53.3% of their economy (compared to 52.2% previously). That pegs the size of the Chinese economy at US$13.1 tln in 2018, second only to the US at US$20.5 tln at the same date.
The UST 10yr yield is unchanged at 1.77% which is a -6 bps decline over the past week.
Gold was down -US$2 at the end of trading last week and will open this week at US$1,461, a -US$7 fall for the week.
US oil prices are lower at just under US$58/bbl. The Brent benchmark is just under US$63.50/bbl. These are very similar levels to a week ago.
The Kiwi dollar has been remarkably stable over the past week, now still at 64.1. On the cross rates we are now at 94.5 AUc and a +½c gain in a week. Against the euro we are little-changed at 58.1 euro cents. That puts the TWI-5 at just on 69.4.
The same can't be said for Bitcoin which is lower yet again this morning at US$7,038 and a drop of -17% for the week after China launched a fresh crackdown on cryptocurrencies, warning of the risks entailed in issuing or trading them.
You can find links to the articles mentioned today in our show notes.
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