Wall Street looks past China risks; US durable goods orders bounce back, consumer sentiment rises; WTO says China's virus response effective; Aussie business confidence sags; UST 10yr yield under 1.64%; oil up and gold falls; NZ$1 = 65.3 USc; TWI-5 = 70.8

Here's our summary of key economic events overnight that affect New Zealand, with news investors are making a brave effort today to look past the China economic risks.

Equity markets have decided that the China virus emergency isn't going to affect them. Wall Street has made a sharp recovery today, with the S&P500 up more than +1% in mid-day trade. That follows European markets which led up with that sort of rise earlier.

Very strong transport equipment orders in the US saw their December durable goods order data rise sharply, up +2.4%. But defense orders drove the result. Excluding defense orders, American durable goods orders actually fell -2.5% in December from a very weak November. And year-on-year, overall durable goods orders were down -3.7% and the non-defense orders were down -6.9%. It is hard not to come to the conclusion that the Pentagon's buying is all that is holding up this data.

Worse, overall capital goods orders are down -10.7% in December from a year ago, and the non-defense component was down an eye-watering -18.0% year-on-year. American business investment is very weak.

But American consumer sentiment is following Wall Street - or perhaps Wall Street was impressed by this data. Consumer confidence rose in January, following a moderate advance in December, driven primarily by a more positive assessment of the current job market and increased optimism about future job prospects. Manufacturers (like 3M and Harley Davidson) are announcing retrenchments. But service industries like banks and tech firms are hiring. It was a rise in consumer sentiment that beat analysts' expectations.

Meanwhile, the Chinese coronavirus is spreading. And most countries have put in place emergency restrictions on travellers from China. But news a Hong Kong university lab has developed a vaccine is encouraging. And the WHO now says there is actually no need to evacuate foreign nations from Wuhan even though many countries are readying plans to do just that. It is a signal that reinforces the sense of panic out of proportion to the actual risks. But such moves play well in domestic politics. But the Chinese actions to deal with the crisis seem to be winning favour with investors. Plus SARS and MERS both passed reasonably quickly and those memories play a part too.

In Europe, the UK has decided to follow Germany's lead and allow Huawei to supply some key but non-critical components in their 5G system. It seems likely New Zealand will follow too, leaving only the US and Australia applying a complete ban. Over-egging by the US seems to have resulted in a diplomatic failure.

In Australia, more evidence that businesses are facing a deteriorating situation. The final monthly business survey of 2019 provides further evidence that conditions edged lower and confidence weakened, falling 2 points to -2 index points, the lowest read since mid-2013. While broadly stable, forward looking indicators do not signal a material improvement in the near term. Forward orders remain weak and capacity utilisation is just below average. Capex has pulled back over the year, and is now also below average. The 2020 China situation won't have improved things from there.

The UST 10yr yield has recovered today, up +3 bps after yesterday's sharp drop and now at 1.64%. Their 2-10 curve is now at +18 bps. Their 1-5 curve has remained negative, now at -7 bps. And their 3m-10yr curve is still flatter at just +11 bps. The Aussie Govt 10yr is up +3 bps to just under 1.00%. The China Govt 10yr is holding at 3.03% but of course their markets are closed this week (at least). But the NZ Govt 10 yr hasn't joined the rebound party yet. It is down another -7 bps to 1.33% and continuing its steep retreat.

Gold is down today on the improved risk mood, now at US$1,569/oz and that is -US$9 lower in a day.

US oil prices are up today recovering about $1 of the previous declines, now just under US$53.50/bbl and the Brent benchmark is up too at just under US$59.50/bbl.

The Kiwi dollar is still lower at 65.3 USc. On the cross rates we have dipped to 96.7 AUc. Against the euro we little changed at 59.3 euro cents. The net of these shifts leaves our TWI-5 at just on 70.8.

Bitcoin is still rising, now at US$8,974 and that is a daily rise of +2%. The bitcoin rate is charted in the exchange rate set here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

Our exchange rate chart is here.