Breakfast briefing: China virus fears grow

Dairy prices rise again; Equity markets fall on fears; Taiwan reports rising growth; EU sentiment jumps unexpectedly; BHP coal output stunted by bushfires; UST 10yr yield under 1.78%; oil unchanged and gold lower; NZ$1 = 66.1 USc; TWI-5 = 71.4

22nd Jan 20, 7:22am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand, with news financial markets are lower today on fears for US growth underperformance, and Chinese growth from SARS II.

But first up today, we had another dairy auction and prices rose for a second time in a row, up +1.7% in US dollar terms and +1.9% in New Zealand dollar terms. Among the key commodities offered, SMP was barely changed, up just +0.7%, but WMP gained a bit more, up +2.4% today. Volumes offered were unremarkable. This is an auction event widely watched, but is dominated by product from Fonterra. Although there are six sellers on the platform, Fonterra accounts for more than 95% of the product offered. Today's event won't be changing any farm payout forecast. And also note that we are well past the peak of the current season and volumes are now running at only 75% of their peak, and will fall steadily to 50% by the end of April, then die away quickly from there. This season will be locked and loaded soon.

Following large falls in Asia yesterday, European equity markets were also lower overnight and Wall Street is back from its long weekend, lower as well. Yesterday's gloomy IMF growth forecasts, especially for the US, and worries about what the coronavirus outbreak in China, are weighing on sentiment. Markets remember the impact SARS had in China last time.

The Wuhan virus outbreak is spreading with hundreds now infected. It has also been reported in South Korea, Thailand and now the Philippines. China's Spring Festival holiday travel could easily be a catalyst for rapid spread. These risks saw the Shanghai equity market fall -1.4% yesterday and Hong Kong fell -2.8%.

In Taiwan, they reported GDP growth of an impressive +3.4% in Q4 2019, taking the overall 2019 rise to +2.7% and far better than most of its Asian rivals.

In Europe, the ZEW sentiment survey has brought a surprisingly large positive rise, far above what analysts were expecting. This builds on a quite remarkable turnaround since September and is now its most positive in almost ten years. The phase one trade deal between the US and China is getting the credit. Sentiment may be improving sharply, but EU economic growth prospects are not expected to follow in such a dramatic way.

France's plan to make mainly American tech giants pay a 3% revenue tax on their business operations in the country has been put back to the end of the year while the matter is under negotiation with the US. That may mean that France will not go it alone and come back in under the OECD BEPS proposals. The US has also agreed to hold back on any retaliation on French products.

In Australia, BHP is saying that bush-fire smoke Is slowing production at its thermal coal mines. (See page 8.) The poor air quality is making equipment harder to operate, and some workers have had to take leave to fight fires. The irony was not lost on many in Australia.

The UST 10yr yield is much lower today after the US long weekend at just under 1.78% and down -5 bps. American growth fears are behind the pullback. Their 2-10 curve is still tighter +24 bps. Their 1-5 curve is even less at +4 bps. And their 3m-10yr curve is down to +24 bps. The Aussie Govt 10yr is at 1.13% and down -4 bps overnight. The China Govt 10yr is also lower, down -3 bps at 3.10%. But the NZ Govt 10 yr is rising, up +2 bps at 1.56%.

Gold is now at US$1,557/oz and up +US$4 from this time yesterday.

US oil prices are unchanged at US$58.50/bbl while the Brent benchmark is lower at US$64.70/bbl.

The Kiwi dollar is little-changed at just on 66.1 USc. On the cross rates we are firmer at 96.4 AUc. Against the euro we are unchanged at 59.6 euro cents. That puts our TWI-5 just under 71.4.

Bitcoin is again little-changed from this time yesterday at US$8,623. 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 ».

Our exchange rate chart is here.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

34 Comments

by profile | 22nd Jan 20, 7:44am 1579632271

The population bomb hitting Europe. Infinite growth is going to be a struggle. "The populations of some other countries, including Japan and South Korea, are shrinking, and ageing faster, but Europe’s prospects as a region are more dramatic. At 43, the median age in the continent is now 12 years older than the rest of the world. According to the latest United Nations report, the population will start shrinking from next year. Although Europe receives more migrants than it loses, the UN says its population will fall by 5 per cent by 2050.

According to the UN, 36.4 percent of the Japanese population will be 65 years of age and older by 2050. This will be followed by South Korea with 35.3 per cent of the population. Germany comes next with 30.7 per cent, 26.7 per cent in France and 24.9 per cent in the United Kingdom, where there will be 14.1 million over-65s in 2050 compared with 9.2 million now.

In 1950 only 7.6 per cent of Europeans were over 65."
https://www.thetimes.co.uk/edition/world/ageing-europe-faces-demographi…

by Gummy Bear Hero | 22nd Jan 20, 9:56am 1579640195

... maybe the bright sparks within the EU apparatus will institute a " 3 child policy " ... or baby bonuses .. .. subsidized babification ...

Or , just add viagra to the water ....

by profile | 22nd Jan 20, 7:53am 1579632839

I could have sworn endless Brexit doomer headlines said this wasn't going to happen. "Britain’s economy will grow faster than those of other major European countries this year as chief executives regard it as an increasingly attractive place to invest, two studies have found.

Amid growing optimism over Britain’s economic outlook, the International Monetary Fund said that it would outperform the eurozone this year and next.

Of the G7 advanced economies only the United States and Canada would grow faster in the next two years, and Germany, France, Italy and Japan struggle to keep up."
https://www.thetimes.co.uk/article/d37b4c70-3bbd-11ea-9bc3-b4804128329e

by Foyle | 22nd Jan 20, 8:12am 1579633953

Being generous no-one really knew how it would evolve, but worth taking into consideration the 20% drop immediately after the referendum that dropped UK salaries relative to their trading partners and made them a more attractive place to do business, in USD terms their GDP is only just back to the levels it was before the referendum.

by Foxglove. | 22nd Jan 20, 8:16am 1579634205

Would have to hope this is accurate. It was a brave vote by the North against the establishment in London, and immigration, but they had to do something. Unpopular as he might be President Trump’s comment that they have got their country back does resonate.

by Gummy Bear Hero | 22nd Jan 20, 8:17am 1579634243

... I recall apocalyptic headlines screaming that the British economy would tumble after Brexit ... typical media , and the hystericals who feed them ...

Anyone suppose that climate change will be the same .. . a massive non event .... and all the shrieking hystericals will be off , onto another target somewhere else . .

by murray86 | 22nd Jan 20, 8:25am 1579634722

Vested interests GBH, who stand to make money by the UK staying in the Union, while they might face more competition and have to work harder when they leave. it is interesting that it seems a lot of countries who were at least in part, shut out of the European union on trade are lining up to do business with the Brits. They just have to make sure the Scots and Irish benefit too.

by Foxglove. | 22nd Jan 20, 10:38am 1579642716

That is the point. The UK, Great Britain if you like, rose and flourished as a mercantile nation, globally. That is the heritage and substance of their very existence. Some of their elder characters,J B Priestly for instance, pleaded painstakingly that Britain had only survived in Europe because it had always stood independently and within its shores, well since 1066 that is. Can they can get that act back together as one nation though, hope so.

by Gummy Bear Hero | 22nd Jan 20, 9:06am 1579637217

. . and just maybe , maybe they can reach out to their commonwealth once again ... rebuild their trading links without interference from heavily subsidized European ( French ! ) farmers ..

by frazz | 22nd Jan 20, 8:34am 1579635242

Hmm..has Brexit happened and done? I must have been on holiday...or are you rabbiting on about a copy and pasted report about what might happen?

by Uninterested | 22nd Jan 20, 9:39am 1579639150

Year 2000. (Bad)
Diversity. (Good)
Climate. (Bad)
Globalism (Good)
there has to be some topic being pushed.

by Gummy Bear Hero | 22nd Jan 20, 10:01am 1579640493

.. Donald Trump : we will plant one trillion trees ! ... ( good ? )

.. Greta Thurnberg : no , planting trees is a waste of time ( BAD !!! ) .... you must shut down the entire fossil fuel industry , and shut it down immediately ( goodest ! )

by mfd | 22nd Jan 20, 9:57am 1579640267

Brexit hasn't happened yet, and we don't know the nature of the future relationship with the EU. There is still plenty of scope for things to go tits up.

by Yvil | 22nd Jan 20, 11:12am 1579644723

You do realise the Times.co.uk is a British tabloid… saying Britain is going to do better than others...

by Foxglove. | 22nd Jan 20, 12:07pm 1579648050

Well then you only have to read The Independent for instance, for the opposing stance. Very partisan UK journalism throughout. The referendum outcome, like it or lump it, was a democratic process, the entire nation had their chance.

by Uninterested | 22nd Jan 20, 8:05am 1579633525

Interesting discussion on Taiwan with the US "ambassador"
https://www.youtube.com/watch?v=LN6X37vMKIc

by Fritz | 22nd Jan 20, 8:40am 1579635656

On the train again this morning, lots of young Indians, I assume most of them are coming in for education.
I am curious as to how they benefit from these second tier education providers. Would many of them be doing this as a stepping stone to uni?

by frazz | 22nd Jan 20, 8:52am 1579636343

Why not strike up a conversation with them and ask? Always surprises me that most of them speak the Queens English far better than I.

by Foxglove. | 22nd Jan 20, 8:59am 1579636770

Aye, but you can’t be that bad. You didn’t say better than me.

by Zachary Smith | 22nd Jan 20, 9:56am 1579640173

If you say “better than I” many people will think that it sounds unnatural and awkward and possibly even pretentious.

by frazz | 22nd Jan 20, 10:05am 1579640757

That was the intention

by Gummy Bear Hero | 22nd Jan 20, 10:06am 1579640790

... it's weird that a proper enunciation of the English language sounds so wonderful from an Indian or African speaker ... but sounds completely ponsy coming from a caucasian .... like , you went to school with Boris Johnson or summit ... ay ...

by Davo36 | 22nd Jan 20, 11:09am 1579644550

Stepping stone to citizenship isn't it?

by Audaxes | 22nd Jan 20, 9:04am 1579637097

Auditor impropriety? - Heads could roll at PwC over Isabel dos Santos links, says chairman

by NZChinese | 22nd Jan 20, 9:53am 1579640008

The way how China communicates the development of coronavirus is very similar to that of then SARS. It will be a hit. NZ needs to start the airport screening process asap.

by waymad | 22nd Jan 20, 10:09am 1579640977

Cases in the USA now. Listened to an RNZ interview with a CDC-affiliated researcher: they don't know what the animal reservoir for the virus is, as yet (and there will be one) - so a whole lot of uncertainty - but human-human transmissibility is certainly high. At least, with a few US cases to test from, the research can proceed more easily than would be the case if offshore cases were the only possibility.

Second your request for border screening....Precautionary Principle rules here.....

by BadRobot | 22nd Jan 20, 10:17am 1579641437

Just hope it's not like the Spanish Flu.

by NZChinese | 22nd Jan 20, 11:07am 1579644448

The "seafood" market where the Chinese authority found the virus initially was not selling seafood but wild animals for people to consume. Apparently nothing was learned from the outbreak of SARS.

by Fritz | 22nd Jan 20, 7:52pm 1579675962

Media sensationalism. It's not going to be a big deal

by Gummy Bear Hero | 22nd Jan 20, 10:30am 1579642203

If anyone's interested in an older story , 2 billions years older , head over to Stuff and check out the Yarrabubba asteroid ... the theory behind it that the earth was an oxygen depleted frozen wasteland , inhabited by single cellular organisms only ...

... and then , the Yarrabuba asteroid struck in West Australia 2.229 billion years ago ... the rest is history ...

by Foxglove. | 22nd Jan 20, 10:41am 1579642884

.....leading up all the way to you and me, or is it I.

by streetwise | 22nd Jan 20, 11:57am 1579647466

In this case 'me' is correct. In English pronouns are always in the accusative case after a preposition. Here the second "to" has been ellipted (omitted) from 'to you and to me' leaving me to be governed by the remaining 'to'.
Likewise, you should say 'between you and me', 'between' being a preposition, and not 'between you and I' because I is in the subjective case.
When I went to school back in the 1950s and 1960s we used to learn such trivia.

by Foxglove. | 22nd Jan 20, 12:24pm 1579649065

Thanks Streetwise, and likewise for me, but you have retained it all about 60 years longer!

by Gummy Bear Hero | 22nd Jan 20, 12:42pm 1579650150

... me too is impressed that streetwise language is more gooder than Gummy speak .... oh yes .. up with poor English I will not put ...