China's domestic economy rises, boosting yuan; India contracts, Japan struggles; US budgets blowout; Canada jobs rise; RBA eyes banks; UST 10y at 0.78%; oil unchanged and gold up; NZ$1 = 66.7 USc; TWI-5 = 69.7

Here’s our summary of key economic events over the weekend that affect New Zealand, with news China’s domestic economy seems to be replacing the American one in driving international trade.

The Chinese services sector reported another solid increase in business activity in September, cementing in a fifth straight month of expansion. They seem well past the pandemic struggle. This growth was backed up by a good rise in new orders, though new export work continued to decline. Still, payrolls rose for the second month in a row amid increased capacity pressures. It is a trend many other countries will envy at this time.

Their factory sector earlier reported a good expansion too, but exports there were stronger than for services. And that is showing up in shipping freight rates which have more than doubled since May, and are now back at the historically high levels last seen in mid 2019. Fast-rising exports to the USA seem to be driving the rise.

And the recent hesitation in the iron ore price may have passed, resuming its upward climb.

The buoyant Chinese economic mood has seen their currency appreciate its most in 15 years. It is all driven by their expanding domestic economy. So now the central bank has removed some reserve rules to try and keep it from rising further.

In India, official forecasts are that the Indian economy will contract -9.5% in the current fiscal year through March 2021 as the fallout from the coronavirus pandemic severely curtails economic activity there.

In Japan, household spending fell for an 11th straight month in August and real wages have fallen for six straight months as consumers struggled to return to their pre-pandemic consumption levels.

The latest household data out of Sweden indicates that their households are in a tough spot with consumption down -3.7% year-on-year. That is similar to Norway and to Denmark. There is no evidence yet that the Swedish tolerance for its high pandemic death toll (583/million) gives it some sort of economic advantage. (Norway = 51/mln, Denmark = 115/mln.)

In Australia, the RBA’s latest financial stability review is somber reading. Business failures and household financial stress will rise significantly over the coming months when loan repayment deferrals and government income supports end, they say.

And in the same report, the central bank warns trading banks about ‘culture’ issues when they come to “the challenging task of dealing with customers’ loan repayment deferrals”.

In the US, their budget deficit tripled in the fiscal year ended September. It widened to -US$3.1 tln from just under -US$1 tln a year earlier. Four years ago this Administration inherited an annual deficit of -$585 bln. This is the largest and fastest deterioration ever. As a share of GDP, the annual 2020 deficit reached -15.2%, the largest since World War II.

The latest USDA WASDE report indicates that despite rising output they expect dairy prices to rise from here on good international demand. Also their beef import forecast has been raised for this year and next, despite noting that their beef exports are likely to fall. That is because their local prices are higher and less competitive internationally.

Canada released its September jobs data over the weekend and it came in much better than expected. They reported a gain of +378,000 jobs, +344,000 of them full-time positions. Their jobless rate fell but only to +9.0%. Their participation rate was higher.

The latest global compilation of COVID-19 data is here. The global tally is 37,301,000 and up at a faster pace of +615,000 since Saturday and near a new record pace. It is being driven higher by sharp rises in the UK, Russia, Argentina and Iran. Global deaths reported now exceed 1,074,000 (+10,000) but clearly many are going unreported.

The largest number of reported cases globally are still in the US, which is up +100,000 in the past two days to 7,963,000 and at the new rising pace. The number of active cases is at 2,650,000 (+47,000) so many more new cases that recoveries and going backwards on that front. Their death total is over 219,000 and still rising at +1000 per day.

In Australia, there have now been 27,264 COVID-19 cases reported, and that is +35 more cases than we reported on Saturday with only Queensland and Tasmania not reporting new cases. Deaths are unchanged at 898.

The UST 10yr yield is at 0.78% this morning and little-changed from where we left it Saturday. Their 2-10 rate curve is firm at +62 bps, their 1-5 curve is also firm at +21 bps, while their 3m-10 year curve is little-changed at +68 bps. The Australian Govt 10 year yield will start this week at 0.86%. The China Govt 10 year yield is marginally lower at 3.20%. The New Zealand Govt 10 year yield is unchanged at 0.55%.

The price of gold is up another +US$6 this morning from the New York Saturday price and now at US$1931/oz.

Oil prices start today little-changed, now just over US$40.50/bbl in the US, while the international price is down a bit more to just over US$42.50/bbl.

The Kiwi dollar starts today holding its higher level of 66.7 USc and a three-week high. Against the Australian dollar we are at 92.1 AUc. Against the euro we are at 56.4 euro cents. And that means our TWI-5 is still at 69.7 and where it was at the start of last week.

The bitcoin price is higher yet again today, now at US$11,407 and +3.1% higher than this time on Saturday. The bitcoin rate is charted in the exchange rate set below.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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