World's major economies set for a positive run to the end of 2024

Economy Watch

Kia ora,

Welcome to Monday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

Today we lead with news the big northern hemisphere countries are starting to report their August activity levels - and most of them are fine.

But first in China, their official August PMIs were released over the weekend. Their factory PMI fell a bit further into a minor contraction. New orders, foreign sales, and buying levels all dropped for a fourth consecutive month. Their employment weakness also persisted in this sector.

However, the Chinese service sector lifted to maintain a minor expansion, but is still far below the February to May levels. In that broader perspective the August lift seems within the margin of error.

The private Caixin versions of these PMIs should be released later today.

Unofficial data of housing sales volumes and values in China weren't encouraging in August. More developers are being ordered to liquidate, unaided by any return of demand for housing. The top 100 developers faced a -10% retreat in sales in August from July, down more than a quarter from August 2023.

South Korean exports were more than +11% higher in August than a year ago, but that undershot the expected +13% rise, and they rose almost +14% in July. The growth of exports to China lagged the overall gains but those to the EU and the USA outperformed. But China remains their top export destination.

Japanese industrial production expanded in July, a good recovery from the June dip. But Japanese retail sales rose at a slightly slower rate than expected.

In the US, they are ending their summer with a major national three-day-weekend holiday, Labor Day. Their markets return in full on Wednesday NZ time.

But before this weekend started, another piece in the policy jigsaw was put in place for the US Fed, the PCE inflation level and that came in low and little-changed, confirming the conditions for a September rate cut. The July core PCE price index rose just +0.2% from the previous month and the market-expected change. The +0.2% monthly increase in headline PCE prices was also in line with expectations. That puts it +2.6% up on a year ago. Nothing disturbed market expectations here - although it probably means the chance of a -50 bps Fed cut is now off the table.

Perhaps helping, there was a slight improvement in the Chicago PMI from the American industrial heartland although this is more of a "contracting less" situation rather than an expansion. New order levels edged up.

Canada said its economy grew at a good +2.1% rate in Q2-2024 and that was better than what was expected by analysts there (+1.8%). Higher wages and savings helped, which drove more government spending.

India also released its Q2-2024 GDP and that rise was in a different league - up +6.7% from a year ago. However analysts had expected a +6.9% rise so that result was tinged with a slight disappointment.

The annual inflation rate in the Eurozone fell to 2.2% in August from 2.6% in the prior month, matching market expectations to result in the smallest rise in consumer prices since July of 2021. Much lower energy costs allowed the moderation.

Australian retail sales were a disappointment in July, with no rise from June and up +2.3% from the same month a year ago, well short of inflation's impact. It is worse on a per capita basis. And given the elevated inflation level they face the real prospect of an interest rate hike. (Financial markets however are not pricing in a hike.)

For the rest of the week, there will be a full dairy auction on Wednesday morning.

And a slew of PMIs from all the major economies are due this week. Australia will release its Q2-2024 GDP and Canada will have a rate decision (where a -25 bps cut is expected). And this week will end with the US non-farm payrolls report which is expected to show a solid +163,000 jobs gain. If it does, that will bolster the expected Fed normalisation move the following week and the rate cut by them.

The UST 10yr yield is now at just on 3.91% and unchanged from Saturday, up +11 bps for the week.

The price of gold will start today yp +US$2 from Saturday at US$2503/oz.

Oil prices are little-changed from Saturday, still just under US$73.50/bbl in the US while the international Brent price is still just under US$77/bbl. Despite all the obvious tensions in the usual places, actually global supply is more than enough and keeping prices low.

The Kiwi dollar starts today up +10 bps from Saturday at 62.5 USc, up a full +1c from a week ago, up +3c from the start of August. Against the Aussie we are firm at 92.4 AUc. Against the euro we are up +10 bps at 56.6 euro cents. That all means our TWI-5 starts today at 70.5 and up +10 bps from Saturday, up +100 bps in a week and up +200 bps since the start of August.

The bitcoin price starts today at US$57,989 and down -1.2% from this time Saturday. Volatility over the past 24 hours has been modest at just on +/- 1.5%.

You can find links to the articles mentioned today in our show notes.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this tomorrow.