Good morning, wherever you are. Here's our summary of key economic events over the weekend that affect New Zealand, with news of a sudden elevation in risk, with events in the Middle East adding to economic, climate and political risks around the world.
The downer comes at a bad time for the US. The widely-watched ISM factory PMI fell sharply to its steepest drop in ten years in December and much 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 a 50-state analysis in the US 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 2019 vehicle sales look like they will be well under 17 mln and that will be the lowest level since 2014.
Meanwhile, the US Fed indicated it is ready to hold its policy settings unchanged for a long time yet.
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.
And as the Chinese 'Spring Festival' approaches (starting January 24), monetary authorities are readying a huge cash injection to ensure there are no liquidity issues - up to four times as much as they released last week with their -50 bps reserve ratio cut. That could see another +NZ$650 bln flooding their banking system on top of the NZ$175 bln last week. All up, that is approaching a +NZ$1 tln addition in January alone.
China is about to claim that is nominal gross national income per capital exceeded US$10,000 in 2019. a rise of about +6%. For comparison, New Zealand recorded US$40,640 in 2018, Australia recorded US$53,230, and the US recorded US$63,080.
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, the extreme temperatures and fires are affecting food supplies in Victoria and NSW. The areas of greatest stress are the centres of dairying for both states. Not only are livestock is a bad way on many farms, those that have fodder and water can't get supplies out of the area. Milking cows are under extreme stress. And production factories in the area don't have staff to operate - they are all at home fighting fires or protecting their properties.
Perversely, when this fire season crisis is over, there is likely to be a significant rebuilding of much lost infrastructure, and when that occurs it could be positive for Australian economic activity. Until then, the data will be very negative.
The UST 10yr yield will start this week at 1.79% and a -9 bps drop since Friday. Their 2-10 curve has tightened up, now at +26 bps. Their 1-5 curve is much flatter at just +5 bps. And their 3m-10yr curve is moved the most, much narrower at +27 bps. The Aussie Govt 10yr is down -8 bps at 1.22%. 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$27 from Friday, now at US$1,552/oz, a reflection of the sudden risks in the Middle East.
US oil prices are more than +US$2 higher at just over US$63/bbl and the Brent benchmark is also sharply higher at just over US$68.50/bbl. Not helping is that US crude oil stocks have dropped sharply.
The Kiwi dollar will start the week very little changed at 66.7 USc. On the cross rates we are also 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 +1.6% to US$7,450 from where we left it on Saturday. 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 ».