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 this may be the week the US gets a new President, an adult, but he inherits a total economic and social mess.

Around the world, car factories are closing or on reduced shifts. The problem is that semiconductor chip makers have sky-high demand from manufacturers of consumer electronics and household appliances which are much larger markets for them than carmakers, and the carmakers are seriously short of supplies. Sharply reduced car production is fueling fears of double-dip recession in 2021, both in the EU and the US. And perhaps in Japan as well.

China is due to report 2020 GDP later today and is widely expected to record +6.1% pa growth in Q4 and an annual rise of +2.1%. In 2021 they expect growth closer to +8%. They are closing the gap on the US fast and are now expected to have a larger economy by 2028, two years earlier than the pre-pandemic estimates. Currently the US generates 16% of world GDP and China will record 14.5% in 2020. China's share was 12% in 2016 when the US share was 16.5%.

Of course, they are miles behind on a per capita basis, but even on that front, while the progress is somewhat chaotic, they are also catching up fast.

Chinese commodity prices are still rising, with corn and rice posting further gains, and coal prices pushing up harder on rising demand. At least the Chinese have arrested the rise of the iron ore price although it is staying at high levels and showing no sign of dipping, despite official pressures.

In Canada, they are increasingly worried about surviving the next few quarters economically. The Canadian prime minister has instructed their government to use “whatever fiscal firepower” is needed over the coming weeks and months until their economy improves. But he also says they must do that in such a way as to “avoid creating new permanent spending.”

Meanwhile in Australia, their government isn't worried at all, saying growth there will come without any more fiscal assistance programs being required.

The total value of new loan commitments for housing in Australia and their value of owner occupier home loan commitments both reached record highs in November 2020. They were up +5.6% from October to AU$24 bln, and were +24% higher than in November 2019. This latest level is a record high for them. Interestingly, the owner-occupied rise was +31% whereas the rise of investor lending was only +4%, year-on-year.

In the US, the new Administration is gearing up to launch a US$1.9 tln relief and rescue program for the US.

They certainly need something dramatic.

After a -1.4% fall in November, analysts had expected US retail sales to be unchanged in December. They were disappointed as the official data shows a further -0.7% decline on a seasonally-adjusted basis and capping a dismal year and ending with three straight months of retreats. For the full calendar year retail sales came in just +0.6% higher than for all of 2019.

But December industrial production came in much better than expected, up +1.6% from November and reducing the year-on-year decline to -3.6%.

However, going into January, the New York Fed's Empire State factory survey isn't too flash. Bad local weather on top of the pandemic lockdowns had their timid expansion nearly evaporate in the month.

Also retreating is the latest UofM consumer sentiment survey. The surveyors call the retreats 'trivial' but they are down almost -2% in a month and down -20% year-on-year. Perhaps in light of the sharper bite from the pandemic they are not as bad as they had expected.

Wall Street ended last week with a small selloff, but the S&P500 futures market suggests it will open with a much larger -1.2% selldown. And a shakeup is coming with the expected appointment of Gary Gensler to lead the Securities and Exchange Commission. He is expected to be its most aggressive regulator in two decades.

The latest global compilation of COVID-19 data is here. The global tally is rising faster, now at 94,702,000 and up +1,284,000 in two days.

But the largest number of reported cases globally are still in the US, which rose +426,000 for their tally to reach 24,328,000.

The UST 10yr yield will start today at just under 1.09% in a risk-aversion tone.

The price of gold was down -US$19 on Saturday in New York at US$1829/oz. Silver also fell quite sharply, down -2.8%.

Oil prices are just on US$52/bbl in the US and slipping, while the international price is now under US$55/bbl and softer for a fifth straight day.

And the Kiwi dollar is much weaker today from this time Friday at 71.3 USc, a drop of -¾c. Against the Australian dollar we are softer as well at 92.6 AUc. Against the euro we are now under 59.1 euro cents. That means our TWI-5 is now down at 72.9 and a -50 bps retreat since Friday.

The bitcoin price is still slipping, down by another -1.1% since this time Saturday and now at US$35,958 although it did get as low as US$33,870 at one point.

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.