Kia ora,

Welcome to Monday's Economy Watch where we follow the economic events and trends that affect New Zealand.

I'm David Chaston and this is the International edition from Interest.co.nz.

Today we lead with news both of the world's largest economies are getting activity expanding again.

China's trade surplus rose very sharply in the first two months of 2021 with exports up +60% and imports up more than +20%. That generated a huge +US$103 bln surplus and far above the expected +US$60 bln. The result was also far above how they ended 2020. Exports to the US were up +87%, imports up +60% resulting in a surplus with their main rival of some +US$51 bln, or half the overall result even if it was slightly less than last year. With New Zealand they ran a -US$1.2 bln deficit. With Australia it was a -US$10.9 bln deficit.

A proxy for Chinese factory activity is the copper price and that is now at its highest in more than ten years. It is signalling anticipated demand for new Chinese infrastructure projects. And the scale of their overall rebound can be found in road transport data which recorded a +45% rise in January from the same pre-pandemic month a year ago. But not everything is going to plan in China.

China has set an economic growth target of ‘above 6%’ for 2021, confirmed at a big Five Year Plan set piece meeting in Beijing. If achieved, it will make the Chinese economy 75% as large as the US, and closing in.

And China is realising that high housing costs are affecting its grim demographic profile, causing couples to limit births due to housing affordability stress. Expect to see a huge surge in new affordable housing projects in the next five years.

In South Korea, one of their largest conglomerates said it will invest NZ$22 bln over five years to develop the domestic hydrogen energy industry. It is a move attracting attention in Japan, China and Europe.

Meanwhile, in the US non-farm payrolls rose a better than expected +329,000 in February, and private payrolls rose +465,000. (Much of that difference was the shedding of -69,000 public teaching jobs in the month although other public sector payrolls declined too.) This was a very good private sector result, aided because the January levels were revised up strongly, but it still leaves a loss of -9.5 mln jobs since the start of the pandemic a year ago.

Now the question is whether this is the start of a substantial recovery in American employment to make back the pandemic losses. The Biden stimulus plan is the 'hope'. Congress seems steeled to push it through despite opposition from the Trump Rump. Stimulus cheques could go out within days. It will juice the American economy with US$1.9 tln in new funding, with a substantial proportion going directly to citizens. The plan is that this juice will result in a much faster recovery in their labour market as their spring season arrives.

Bond markets worry this may accelerate an already evident inflationary impulse.

Not so good was the January US trade balance which came in at -US$68.2 bln and very much higher than a year ago. The goods and services deficit over the last twelve months is now -US$705.5 bln and a new record. That is -3.3% of US GDP. The annual goods deficit is up to -$934.2 bln and on its way to a -US$1 tln shortfall between exports and imports. (Their goods deficit with China actually shrank in January from December.) Their services surplus was +US$228.7 bln and slowly shrinking.

The US and the EU suspended its trade dispute that resulted in tit-for-tat tariffs on aircraft sales.

In the European euro bond market, they haven't got the rising bond yield memo yet. Saudi Arabia has issued euro bonds at a negative interest rate - effectively being paid to borrow. They are the second sovereign to achieve that, the first being China in 2020.

In Australia, collapsing power prices due to the rise of low-cost renewable is expected to start shutting a growing set of coal-powered power stations, starting as early as this coming week. Many of these shutdowns could be permanent.

The UST 10yr yield is up another +2 bps at 1.58% taking the weekly rise to +14 bps. +10 bps.

The price of gold starts today up by +US$1 from yesterday, now just on US$1700/oz. In a week it has fallen -US$43/oz or -2.3%.

Oil prices are up at US$66/bbl in the US, while the international price is up more to just under US$69.50/bbl. These are their highest levels in more than two years.

And the Kiwi dollar opens at 71.6 USc which is -110 bps lower than this time last week. Against the Australian dollar we are at 93.2 AUc. Against the euro we are at 60.2 euro cents. That means our TWI-5 is at 73.8 and actually only marginally lower in a week.

The bitcoin price will start the week up at US$51,141 and a rise of +4.6% since this time on Saturday. Volatility in the past 24 hours is still high +/- 3.8%.

You can find links to the articles mentioned today in our show notes.

And get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. We will do this again tomorrow.