Here’s our summary of key economic events overnight that affect New Zealand, with news official rescue efforts haven’t allayed deep fears about the immediate economic situation.
Friday’s +9% equity market bounce on Wall Street has been undone today – revealed for what it was, wishful thinking – with the S&P500 currently down -9% so far today, and falling. Update: The S&P500 ended trading in New York down -12%. The US Fed’s rescue package, one called for and applauded by the US Administration, has had the opposite effect of shoring up confidence – it in fact undermined investor confidence. Markets are watching the cumulative impact of consumer and business decisions, none of which are positive as fear pervades all decisions.
A remarkable thing about the weekend US Fed move is that they fired as many bullets in one weekend day as they did over the whole of 2008. With sudden financial largesse like this, there are sure to be huge and unexpected distortions flowing around the world. We are in a monetary policy black hole.
Wall Street is following Europe and adding to the decline. European markets were down about -5% overnight. Yesterday, key Asian markets were down about -3%.
In the US, we are seeing the first of the regional factory surveys diving. The New York survey reported sharply lower levels similar to those last seen in the GFC. The collapse in new orders is a big worry.
Getting goods to market is now going to become a major problem for firms that have orders. The unprecedented shrinkage of passenger travel by air has removed vast amounts of air cargo capacity. Approaching 200,000 flights have been cancelled in the past six weeks and the remaining capacity is focused on urgent medical supplies. Given there are about 100,000 flights per day globally, and that the reduction has been sudden and concentrated in the past two weeks – and is growing – the situation will be very tough very quickly.
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Will the rest of the world be ‘saved’ by China’s re-emergence of the other side of the virus emergency? It will have some impact, but nowhere near enough to ‘save’ the US, or Europe. But it might be an ameliorating factor for Japan, and important for New Zealand.
China’s February industrial production was down -13.5% year-on-year compared to the usual rise of more than +6% pa. China’s retail sales were down -20.5% on the same basis, a shift from +8% rises. These are enormous changes striking at the heart of the Chinese economy. It is unlikely that this data will be any better in March. But as big as these falls are, they still have their economy ticking over – things did not come to a complete stop. And we are seeing returning export activity from New Zealand to China.
But in February, Chinese home price growth stalled, and 19 major cities had zero new home transactions in February. None.
The thing about these sharp drops; these are the sorts of changes the rest of the world is looking at in March and April. It is going to get much more ugly than most in the West are assuming. Monetary policy can’t save us from that.
The latest compilation of Covid-19 data is here. The global tally is now 175,300 of officially confirmed cases, up +54% in a week. There are now 94,240 cases outside China, a rise of nearly +20,000 in one day as the numbers keep on jumping. The new hotspots are Spain (up 8x in a week), Germany (up 5x in a week) and the USA (up 6x in a week). In the rest of the world, the number of reported cases has quadrupled in a week. Globally reported deaths are now approaching 7000.
The UST 10yr yield is falling today, down almost -20 bps from yesterday and resuming its downward track. It is now at 0.72%. Rate curves are still sharply positive as short pricing dives. But their 2-10 curve is a little less positive at +45 bps. Their 1-5 curve has also turned much less positive at +24 bps. while their 3m-10yr curve is still out at +59 bps. The Aussie Govt 10yr yield is down -7 bps now at 1.02%. The China Govt 10yr is up +3 bps at 2.74%. The NZ Govt 10 yr yield is also very sharply lower, now at 1.01% and down -19 bps.
Gold keep falling. It is down -US$27/oz today to US$1,503/oz. It no longer operates as a price hedge against uncertainty.
US oil prices have dropped sharply today, down another US$3/bbl to just under US$29/bbl with the Brent benchmark just under US$30. Vanishing demand is accentuating the Saudi/Russia fight and they seem to have lost control of it.
The Kiwi dollar starting today with a bounce higher. It is now 61 USc. On the cross rates however we are have leapt against the Aussie dollar which is still getting marked down. We are now at 99.4 AUc, a rise of almost +1c in a day and at that level we are just a whisker off its all time modern high and very near parity. For Kiwi sellers of AUD, we are well past parity. Against the euro we are little-changed at 54.7 euro cents. That means our TWI-5 is now at 67.2 winding back some of the 2020 overall devaluation.
Bitcoin, like gold, is also lower, down to US$5,014, a fall of -5.3% since this time yesterday. The bitcoin rate is charted in the exchange rate set below.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
