Here's our summary of key economic events over the holiday weekend with news of a major airplane crash in South Korea, probably due to a birdstrike.
In the global economy, the situation is dominated by market fears of what the incoming Trump Administration will do. Bond yields are pricing in that risk by raising them to near their highest since 2007. Equity markets are down, with the S&P500 down -2% since its peak close on December 6. The Nasdaq is down -2.2% since its peak on December 16.
Rising bond yields depress bond prices. And some finance professionals think the shift higher has only just begun and the risks will accelerate as the capricious Trump agenda takes shape. Bond investors are in for steep losses in 2025, they say.
The type of flipflops from Trump, like going from campaigning to ban TikTok to now telling the Supreme Court to leave it alone, from campaigning to ban immigrant H-1B visas to now saying they are essential, mean markets don't trust his positions anymore. They are late to this realisation. And perhaps it mattered little when he was just a candidate, but now he will be in power again, they sense chaos.
We should also keep an eye on trade disputes between Canada and the US. A Trump penchant for tariffs on Canadian softwood exports to the US could see a rise in competition in other markets for New Zealand logs and milled pine as a fallout.
Meanwhile, US inventories, both retail and wholesale were little-changed in November. But they are likely to rise from here as traders rush to beat the impending tariffs.
US exports rose +6.0% in November compared with the same month a year ago. But US imports are zooming higher on the expectation of those rising tariffs, up +7.3%. That caused a Trump-induced trade deficit of -US$99 bln in the month, up from -US$90 bln in the same month a year ago.
Across the Pacific, Japanese retail sales rose +2.8% in November from year-ago levels, up from a downwardly revised +1.3% rise in October, and easily beating market expectations of a +1.7% gain. This marked the 32nd straight month of expansion in retail sales there and the fastest growth since August, with rising wages continuing to support consumption.
However, Japanese industrial production fell by -2.3% in November from October, compared with market expectations of a -3.4% fall. The latest result followed a +2.8% growth in October and is the first contraction in industrial output since August. Year-on-year the November decline was -2.8%. A dip in machinery orders took the blame.
Taiwanese consumer sentiment dipped in December from November, but remains sharply higher than year-ago levels, and still in the high recovered range after the low point in late 2022. However, it isn't yet back to pre-pandemic levels.
In China, local observers now expect "outsized stimulus" from Beijing policymakers in 2025.
Perhaps that is because Chinese industrial profits fell -7.0% in November, compared to the same month a year ago. Even the Chinese habit of only reporting year-to-date results shows a decline now of -4.4%, so the recent months are coming in weaker than earlier. After peaking in 2021, these profits have fallen each year since. Interestingly, state-owned enterprises, which tend to be very large businesses are doing the weakest, down -8.4%. Private foreign-owned businesses are doing the least-worst (-1.0%). And other private sector businesses are down -4.7%. It is hard to see private investors happy in this environment.
China’s commerce ministry said on Friday that it has launched an investigation into imported beef at the request of representatives from its struggling domestic industry. New Zealand is one source, including through the Silver Fern Farms link. But the main focus is on imports from Brazil and Australia.
In Tibet, and in an area China controls but is disputed with India, China just committed to build a vast hydro-electric river dam, so large it is expected to take a decade to finish, and then deliver three times the output of their famous Three Gorges Dam. But they are damming the Yarlung Tsangpo River, which is known as the Brahmaputra River in India and one of India's great rivers. Expect a rise in tension between India and China because of this, although the main impact will be on Bangladesh.
In Iran, their currency is under severe pressure and energy shortages are growing. The country is bracing for a spike in civil unrest.
We should also note that coffee prices are soaring again, now higher than all the prior peaks in 2011, 2007, and 1997. Droughts in Brazil and Vietnam are getting the blame. Cocoa prices are staying very high too, and for similar reasons although they have pulled back a bit since mid December.
The UST 10yr yield is now at just on 4.63%, and up +2 bps from Saturday, and up +12 bps from this time last week. It is up from 3.86% a year ago, but most of that is since the November US election. The key 2-10 yield curve is still positive by +30 bps. Their 1-5 curve inversion is more positive, now by +27 bps. And their 3 mth-10yr curve is also more positive at +32 bps. The Australian 10 year bond yield starts today at 4.38% and down a rather sharp -9 bps. The China 10 year bond rate is now at 1.70% and unchanged. The NZ Government 10 year bond rate is now at 4.52% and also unchanged from Saturday, down -13 bps from this time last week.
This will be tough for yield-linked investments like real estate. After hanging on through the pandemic, commercial property values are especially at risk. The sector cleanout could be a feature of 2025, internationally.
And perhaps it is also time to assess the 2024 equity market performance - even though there are still two trading days to go. The S&P500 is up +25.2% so far with a continuous rise all year and despite the recent pullback. Tokyo is up +21%, but all that came in the first half of 2024. Hong Kong is up +20%, although all that came in the final quarter. Ditto Shanghai, caused by the same policy reason of Beijing actively supporting its equity markets. The ASX200 is up +8.3% for the year with a steady move higher all year but a recent pullback. And the NZX50 is up +12.6%, with all of its gains in the second half of the year.
The price of gold will start today at US$2620/oz and up +US$6 from Saturday.
Oil prices are little-changed at just over US$70.50/bbl in the US while the international Brent price is now just over US$74. A week ago these prices were -US$1 lower.
The Kiwi dollar starts today just on 56.4 USc and up +10 bps from Saturday. Against the Aussie we are down -10 bps at 90.6 AUc. Against the euro we are also up +10 bps at 54.1 euro cents. That all means our TWI-5 starts today at just on 67 to be up +10 bps from Saturday and down -10 bps from this time last week.
The bitcoin price starts today at US$93,747 and down -0.3% from this time on Saturday. A week ago it was at US$97,137 so down -3.5% since then. Volatility over the past 24 hours has been modest at +/- 1.1%. Most of the annual rise in the bitcoin price has been after the November US election.
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