Episode Details

Kia ora,

Welcome to Tuesday’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 China's financial markets are flashing some unwelcome signals.

But first up today, there were a range of services PMIs for December released overnight. And the most interesting one (for us) is the Aussie one. Their service sector expanded in the month, with new business growth accelerating, inflation rising, and business confidence at its highest level in 2½ years. This got the attention of financial markets who promptly downgraded the chance of ab RBA rate cut when they next meet on February 18. Australian benchmark Government bond yields rose sharply across the board with their 10 year up an outsized +14 bps.

In China, you mar recall we reported that their official services PMI jumped from a no-change growth position in November to an outsized positive 52.2 expansion in December - and we counselled to wait for confirmation by the private Caixin services PMI. Well, that Caixin services report is in and it also recorded an 52.2 expansion, an improvement although not as sharp as the official version reported. So we can be confident the Chinese services sector is expanding now at a good pace. And it does seem to confirm that the Beijing stimulus measures are having a positive impact.

In Japan, their December services PMI improved to a better expansion, although to be fair it was only a marginal gain.

In India, they also reported an uptick with faster growth and softer inflationary pressures. They still have a very strong expansion, although the December gain wasn't quite as strong as analysts had expected.

In Canada they slipped from a November expansion to a December contraction in their services sector. (And we should probably note, unrelated to that, Pierre Trudeau has resigned as prime minister today, ending a long political career. He has been their prime minister since 2015. They alternate the role between Conservatives and Liberals and their successful leaders seem to remain in office for about nine years each.)

In the US, their S&P/Markit services PMI rose in December to a good expansion, although not quite as strong as was expected. Their widely-watched local ISM services PMI is due out tomorrow and is also expected to report a modest improvement.

Meanwhile, US factory orders slipped marginally in November from October to be only a marginal +0.1% higher than the same month in 2023.

The US Treasury had a well-supported three year bond auction earlier today. Th