Good morning, wherever you are. Here's our summary of key economic events over the holiday break that affect New Zealand, with news climate, health, political and economic threats are all rising at the same time. New Zealand is an island of stability.
It is all about a sudden elevation of risk today as things spiral toward confrontations in the Middle East. Stock, bonds and commodities are all impacted.
The downer comes at a bad time for the US. The widely-watched ISM factory PMI fell sharply to its lowest level since mid 2009 recording a steep contraction in December and worse than expected. That is the fifth straight month on decline. New orders fell faster. The data suggests their GDP grew at only +1.3% pa in Q4, 2019, accentuating the economic decline. Given that China's factory PMI is expanding, it is clear that the US is not winning the tariff wars. And despite the Americans talking up the deal, the Chinese have been very mum on details and the timing of any signing, suggesting it is not as agreed as the Americans think it is
And a 50-state analysis shows that nine of them are expected to contract into recession in 2020, the most since the GFC. The most 'interesting' thing about those nine is that they are mostly in the Trump heartland.
American vehicle sales in 2019 look like they will just under 17 mln and that will be the lowest level since 2014.
Wall Street is down -0.7% in late Friday trading. That follows a mixed set of results in Europe, with Frankfurt and Brussels down, Paris and London up. Yesterday in Shanghai they ended flat, but Hong Kong and Tokyo both recorded declines.
In Canada, factories are slowing there too, but at least they are still expanding.
In China, not only are they contending with the ASF virus in their pig herd, a new SARS-like virus is spreading in humans and causing widespread unease.
In Hong Kong, protests continue, the latest by teachers pushing back at removal threats for participating in the demonstrations. All this is having a severe impact on the City's retail trade which was down by an eye-watering -23% in November year-on-year and similar to the sharp October decline.
In Australia, NSW and Victoria are bracing for "a day of hell" from bush fires. Their electricity grid is increasingly vulnerable. Sydney's water storage is now down to under 44% capacity. Soot pollution of the water supply is as much of a threat as fire to water pumping infrastructure.
The UST 10yr yield is down -8 bps the risk aversion at just under 1.80%. Their 2-10 curve has tightened up, now at +28 bps. Their 1-5 curve is much flatter at just +6 bps. And their 3m-10yr curve is moved the most, much narrower at +28 bps. The Aussie Govt 10yr is down -7 bps at 1.23%. The China Govt 10yr is unchanged at 3.19% holding its notable stability. And the NZ Govt 10 yr is also down, -7 bps lower at 1.59%.
And as you would expect, gold is much firmer today, up +US$25 from yesterday, now at US$1,550/oz, a reflection of the sudden risks in the Middle East.
US oil prices are more than +US$2 higher at just under US$63/bbl but the Brent benchmark is now sharply lower at just over US$68/bbl.
The Kiwi dollar hasn't been hit much at all, but it is marginally softer. It is now at 66.7 USc. On the cross rates we are unchanged at 95.8 AUc. Against the euro we are holding at 59.7 euro cents. That puts our TWI-5 at 71.5 and the same level as just before the holiday break started.
But bitcoin is up +5.8% from where we left it yesterday after the Middle East tensions, now at US$7,335. 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 ».