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.

And today we lead with news the economic world its returning after the end of year holiday season, and finding the 2024 worries are still here in 2025.

First up however, the first post-New Year holiday week back will be a relatively quiet one, but there are still some important things to cover, and few of the key ones are local. But the week culminates with the December US non-farm payrolls report in the US, and that will increasingly dominate how the week goes. Markets currently expect a modest +150,000 rise in US jobs. That is close to 'average' over the past ten years. But don't forget that is the seasonally-adjusted result. Actual payroll shrink in the month usually, and that average over the past ten years is by -160,000. That is what we will be watching, because fewer actual people employed could have an outsized impact on metrics like retail sales and the like.

The US will also release December services PMIs. A slightly softer expansion is expected. And China will release its important new yuan loan data, and the expectations are for another weak result. Eyes will also be on India's industrial production data, something that has been softish recently.

Just as important for us, we will get more December real estate activity data this week. We will also get another full dairy auction on Wednesday, and the intervening Pulse results for both SMP and WMP have shown a marked softness since the last full auction event. And Barfoots are likely to release their December results later in the week.

Over the weekend, the FAO World Food Price Index reported a -0.5% fall in December from an upwardly revised November. Dairy prices fell -0.7% but meat prices rose +0.4%. Overall this index is +6.6% higher than year-ago levels with dairy up +17% and meat up +7.0% on that annual basis.

On the commodity front, both lithium and iron ore prices slipped on concerns about the prospects for the Chinese economy. The Shanghai stock exchange fell yet again, by -1.6% on Friday to be down a very sharp -5.5% for the week. And the benchmark yield for Chinese government bonds slumped to a new record low of 1.60% for the 10 year. The yuan fell, testing its lowest level since 2007 after their central bank stopped defending 7.3 to the USD.

So China is ramping up its subsidy program for consumer durables, trying to spark some extra consumption activity.

And China's central bank said late Friday during a quarterly meeting of its monetary policy committee that it will cut banks’ reserve requirement ratio and interest rates at the “proper time”.

So China is starting the New Year on the back foot.

Across all reporting countries, the global factory PMI contracted slightly in December, shifting from the slight expansion in November. Good expansions in India, Taiwan, Canada, and China (among eight others) was offset and more by retreats in the US, Australia and especially the Europe (among seven others). On balance, it was soft new order levels that is turning the global tide.

In the US, a good rise in new orders saw the widely-watched ISM factory PMI rise by 0.9 points in December from the previous month to record only a very minor contraction and very much better than was expected. The result reflected the softest pace of contraction in the US manufacturing sector since March. Oddly, the narrative for the internationally-benchmarked S&P/Markit PMI was the inverse with weaker new orders and slipping output. However, both surveys landed at the same spot, reporting a very minor contraction.

US vehicle sales ended the year on a strong note, running at a 16 mln annualised rate. EV sales accounted for 9.0% of those, and a surge in demand for EVs helped heavyweight GM claim the top spot for all cars and now second only to Tesla in EVs. Tesla slipped back in the final quarter. (For reference, NZ EV sales in 2024 were 7.3%.)

Over the weekend, two Fed governors (Daly and Kugler) both reiterated that the battle to control US inflation is not yet won. Another was more positive, but thought restrive rates should still stay in place until things are clearer.

In Canada, their factory PMI delivered a solid performance with good new order levels and rising output contributing to a rising expansion.

In Australia, SE NSW and NE Victoria have been hit by a headwave with temperatures as high as 45oC. But a wind-change has relieved things today. Bushfire season is well underway there.

Containerised freight rates rose marginally last week (+3% overall), built on a +7% surge on Trans Pacific rates from China to the USWC. Traders are trying to beat what are expected to be new tariffs from the incoming US Administration. Bulk cargo rates stopped falling this week, essentially holding at an 18 month low.

The UST 10yr yield is now at just on 4.60%, and up +1 bp from Saturday. 

The price of gold will start today at US$2639/oz and little-changed (-US$1) from this time Saturday.

Oil prices are unchanged from this time Saturday at just on US$74/bbl in the US while the international Brent price is still just on US$76.50. Both are up +US$2.50 since this time last week and at a two-month high.

The Kiwi dollar starts today just on 56.1 USc and unchanged from yesterday, but down -20 bps from a week ago. Against the Aussie we are down -10 bps to 90.2 AUc. Against the euro we are also down -10 bps at 54.4 euro cents. That all means our TWI-5 starts today at just over 66.8 and down -10 bps from this time Saturday - but essentially unchanged from a week ago.

The bitcoin price starts today at US$98,070 and up +0.1% from this time on Saturday. Volatility over the past 24 hours has been low at +/- 0.8%.

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 again tomorrow.