Information breakfast; China facing a liquidity trap


Here’s our roundup of the weekend’s main economic events affecting New Zealand, with news that China appears to be entering a classic liquidity trap situation.

Chinese banks lent 679 billion yen in new yuan loans in July, the lowest reading in three months and well below ¥1.08tln a year earlier. The level also disappointed investors who expected a similar expansion to last year. But the ongoing housing crisis has weighed on consumer sentiment and government bond issuance has slowed. Low interest ratesa M2 money supply rising rapidlyand banks willing to lend but customers unwilling to borrow, and savers saving more, is a classic liquidity trap.

In Malaysia they reported an economic expansion in the June quarter that exceeded expectations, growing at an annualized rate of nearly +9% and impressive even if starting from a rather low base.

India has reported positively on their June industrial production levels, a fourth straight month of outsized gains.

EU industrial production data was released in June and it also brought a good surprise. It increased by +3.2% across the EU compared to a year ago, much better than the expected +1%. British industrial production increased by +2.4% on the same basis.

In the UK, their economy contracted in the second quarter compared to the previous one, as households faced with runaway inflation cut spending and programs aimed at containing the pandemic were halted, signaling difficult times for an economy that is expected to enter a long recession.

In Russia, their economy also contracted, but more sharply in the June quarter, as the economic consequences of the war in Ukraine were felt. Their economy shrank by -4% from April to June compared to a year ago. It is the first quarterly gross domestic product report to fully capture developments in the economy since the invasion of Ukraine in February, when Western sanctions cut Russia off from much of the financial system. world and that many countries have severed trade relations with Moscow. It is also a sharp turnaround from the first quarter, when the economy grew by +3.5%.

In the United States, the latest sentiment survey, this one for August and by the highly watched series from the University of Michigan, indicates growing optimism. But to be fair, it’s only a long way from its deep bottom for current conditions. However, the economic outlook for the year ahead has improved significantly, which is likely significant – and may indicate that consumers are discouraged by stupid political “theft” shenanigans.

July USDA WASDE report paints a much more relaxed picture of the international grain situation. Despite the European war, they now believe that most regions will see increases in production, especially for wheat. Maize and other coarse grains could get a little tighter, they say, but rice trade will be plenty, although slightly lower than last year. They also see slightly higher dairy prices and higher beef prices, but few supply issues.

We should also note that the annual party for central bankers in Jackson Hole in Wyoming will take place at the end of this month, a moment of navel-gazing on the orientations of monetary policy. This year it seems likely that QT (quantitative tightening, or emptying the reservoir of QE) will be a major topic).

In Australia, sales of new homes plunged -13% in July compared to June, from a gain of nearly +2% in June. The sudden drop is blamed on recent increases in the cash rate, with builders reporting fewer inquiries and visits to billboard sites.

The UST 10yr yield starts today at 2.84% and very little different from levels a week ago. The UST 2-10 yield curve is more marginally inverted today, now at -41bps and their 1-5 curve is also slightly more inverted at -29bps. Their 30d-10y curve is now at +65bps and slightly flatter than yesterday at this time. The Australian 10-year bond is down -1 bp at 3.40%. The 10-year Chinese government bond is unchanged at 2.75%. And the New Zealand 10-year government will start today up 3.52% and up a further +19bps from levels a week ago. Remember we have a full RBNZ MPS on Wednesday this week to deliver another +50bps upside.

The price of gold will open today at US$1,804/oz, up +US$2/oz from this time on Saturday, and +US$28/oz week-on-week, up +1.6%. It is also the first time above US$1,800 in seven weeks.

And oil prices today start unchanged at just under US$91.50/bbl in the US, while the international Brent price is now just below US$97.50/bbl. A week ago, these prices were respectively US$88.50 and US$94.50/bbl, a weekly increase of +3%.

The Kiwi Dollar will open today at 64.5 USc, more than +2c higher than the same time last week and its highest since early June. Against the Australian dollar, we maintain a rise at 90.6 AUc. Against the euro, we rose to 62.9 euro cents. This means that our TWI-5 today starts at 72.7, our highest in over three months. This is an appreciation of +2.4% in one week.

Bitcoin price is up +0.7% from this time Saturday at US$24,248. Volatility over the past 24 hours has been modest at just under +/-1.7%.

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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