Virus cases jump; China retail shifts online fast; Aussie December retail weak; seafreight markets dive; commodities sink; China halves tariffs; equity markets jump; UST 10yr yield at 1.65%; oil down and gold up; NZ$1 = 64.6 USc; TWI-5 = 70.2

Virus cases jump; China retail shifts online fast; Aussie December retail weak; seafreight markets dive; commodities sink; China halves tariffs; equity markets jump; UST 10yr yield at 1.65%; oil down and gold up; NZ$1 = 64.6 USc; TWI-5 = 70.2

Here's our summary of key economic events overnight that affect New Zealand, with news financial markets are still prepared to look through the economic pain about to hit from China.

The number of cases the coronavirus is still rising, up a sharp +15% in a day and now over 28,000 and the death toll rose similarly. But most are still in Hubei Province and it is becoming clear that the Chinese strategy is to sacrifice that province to save the rest of China, and the world. It is fearsomely ugly at ground zero with a complete shutdown.

The streets may be deserted in some large regional Chinese cities, but retail commerce continues online. Online payment transactions are almost +50% higher than the same time last year.

Although international airfreight ended 2019 with a -3.3% contraction and for the full year the Asia-Pacific region shrank -6.4%, the passenger air travel market wasn't so depressed in December. It is still growing even if the 2019 growth was the slowest since the GFC. And the December rise in international travel was +3.8% year-on-year.

Australian retail sales data was unexpectedly weak in December, but that was more because consumer buying patterns shifted with more of a peak in November. For the full final 2019 quarter, sales were up +2.7% year-on-year and that is considered a good result.

The Australian trade balance (for both goods and services) came in high for a December but lower than expected. The December balance was up mainly because import growth is lagging. Whether mineral export growth will continue into 2020 is now highly dubious.

Seafreight markets remain very low, with the Baltic Dry index slipping further and some key components near record lows. The iron ore price, which was at over US$92/tonne a week ago, has opened after the Chinese New Year at just on US$80/tonne, a sharp drop of more than -12% and back to levels last seen in November.

Signals from Singapore reveal they are getting ready to devalue their currency in response to the trade hit they are taking from the Chinese coronavirus. This comes after Hong Kong revealed its economy contracted sharply in 2019.

China has announced that it will half tariffs on about US$75 bln of goods from next week. But its capacity to buy more is seriously undermined by its virus emergency, so the practical impact will be low in the immediate term.

In mid-day trade, the S&P500 is up +0.3% today, following European markets that were up as much as +0.9% (Paris) or as low as +0.3% (London). Yesterday, Tokyo leapt +2.4%, Hong Kong joining in the frenzy, up +2.6%, and Shanghai was enthusiastic too, up+1.7%. Locally, the ASX200 rose +1% while the NZX was closed, of course.

Elsewhere, there is an American non-farm payrolls report out tomorrow and yesterday the precursor ADP employment report was released, and it showed strong jobs gains. Most (81%) of these gains were in their service sector. If this holds, it will be the largest monthly gain since December 2014. But we should note that last month the ADP Report signaled a +202,000 gain that wasn't reflected in the non-farm payrolls report (+145,000).

In Germany, data for December factory orders shrank sharply, down almost -9% compared with the same month in 2018. For an economy the size of Germany, that is a huge decrease.

The UST 10yr yield will start at just under 1.65% and similar to this time yesterday. Their 2-10 curve is holding at +20 bps. Their 1-5 curve is still negative at -4 bps. Their 3m-10yr curve is positive, now at +10 bps. The Aussie Govt 10yr is little-changed at 1.08%. The China Govt 10yr now at 2.88% and also littel-changed. And the NZ Govt 10 yr has confirms the stable mood at 1.33% after yesterday's strong rise.

Gold has risen again today, up another +US$8 to US$1,566/oz.

US oil prices are a little lower today at just under US$51/bbl. The Brent benchmark has also slipped to just under US$55/bbl.

The Kiwi dollar is a little soft this morning at 64.6 USc. On the cross rates we are lower at just on 95.9 AUc. Against the euro we are holding at 58.8 euro cents. That takes our TWI-5 a little lower to 70.2.

Bitcoin is still rising, up +2.5% at US$9,550. That takes it above NZ$15,000 and its highest level since October 2019. 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 help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Regarding the virus the graph shows only a 2.5% increase in cases from Feb 05 to Feb 06.

The figures above are for Feb 04 to 05. While there was a reported increase of cases on that day of 15% the death toll increase was only 3%. However a 10% increase the next day. Deaths are low at this stage so these percentages don't mean a lot as just one death can change the percentage.

The graph of new infections does look promising today (hope it is the truth) as we are seeing a definite leveling off after a fairly sustained rise. The next couple of days will be interesting. Everyone wearing masks and staying at home, even hundreds of kms away, should greatly reduce the new infection rate and we will start to see that reflected in the figures over the coming days.

It is bit of an exaggeration to describe ground zero as "fearsomely ugly" at this stage.

EDIT: I was getting a bit ahead in time. China has only just finished Feb 06. Cancel my optimism!

4000 new cases yesterday, that's will most likely be 28,000 in a week. It was doubling in a week now exceeding that.

The Johns Hopkins graph seems quite different to the Worldometer one. Not sure what is going on there.

https://gisanddata.maps.arcgis.com/apps/opsdashboard/index.html#/bda7594...

https://www.worldometers.info/coronavirus/

The John Hopkins current day figures must be incomplete. They probably shouldn't include them until it is known.

Anyway I am stockpiling food now just in case.

Was at the local Pak n Save yesterday and no idea whether it was due to Waitangai Day or coronavirus concerns or something else, but rather a number of lines of items had sold out and the shelves not replenished with new supplies. Could be something completely different but it made me wonder if some people have become nervous and begun stockpiling.

It's either started or starting soon.
I've started with bug out items that will go into short supply once the China supply chain runs dry. A single case on NZ soil will kick ot into overdrive. A stock pile would have been created to get factories over the New Year break and enable production to come back online. That will be all but dried up now and other countries mobilizing to fill the gap but that will take a while to kick on a s well.
Big reductions in global shipping tells part of the story.

Head for the hills!!!

Don't forget your guns and gold!!

Check!

Or bury your head in the sand.

Agree I think it’s not a silly idea to stock up, after all better safe then sorry. If it turns out to be a minor problem then nothing lost. I think we will see an interest rate cut shortly because if it does spread there will be some major flow on effects for instance hospitality etc.

We (a good portion of Kiwi's) have an earthquake stock pile for an event that is an event that will be localised and stocks will be able to be delivered within short notice.
A global pandemic would be far worse, so why not stock up on a few goods that you can use over time anyway... I'm not talking about emptying the shelves and spending a massive amount of dollars but a $100 more in the trolley of non perishables is easy and a no brainer.

It's kind of fun as well. Embrace the emergency I say.

A few months in the bush would be amazing..... Tough but fun.

It's reasonable to stockpile some provisions. May have to stay indoors for a few weeks and limit any forays into the outside world. This is something civil defence folk advise under normal circumstances anyway. Rice, fruit juices and cans can be consumed later if all goes well.
I'm thinking:

Rice
Flour
Fruit Juice
Dried food
Vitamins
Cans
Fill up the freezer with meat
Alcohol
Cooking gas

Sitting in doors waiting for Labour to deliver?
Yeah mate, that's not option A for me.
Yes NZ most likely has meat and vegs to sustain itself... but can Labour mobilize it?

I think Countdown delivers but I was suggesting stocking up before having to sit indoors holed up for a few weeks.

I will probably have more meat here than I could eat in a lifetime. I am open to barter....

https://www.theage.com.au/business/markets/the-coronavirus-is-far-from-u...

The Age via The Telegraph has 2 thirds of the Chinese economy shut down. How does that affect NZ. Let me count the ways... .

Plastic things we dont need are in short supply?

Hopefully we will stop exporting bovine lactation that ruin our waterways, and stop importing pre-delivered landfill.

The graph has that "leveling off" look every morning - have another look this afternoon when it's updated.

Hmmm, indeed, if the trajectory continues we should see it reach something like 33-34k today.

I'm assuming that for every case there is either a "death" or a "recovered" - nothing in between.

If so, then this probably has quite a way to go before it plays itself out - and the numbers could become quite meaningful.

There is the laid up in bed portion, that seams to be 2 to 4 weeks you are down and out.
14 days on average to death a week or so longer if you dont die if you were close to it.
Recovery stats are amazingly low.

Pay attention to data from countries other than China. The CCP's figures, no matter how pretty the graphs, are worthless.The most authoritative study, available in full on The Lancet, suggests over 75,000 infections on Jan 25th in Wuhan alone. (See: https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)30260-9/fulltext). The problem the CCP has is how, if ever, it can come clean on actualities. In the meantime, the strategy is to shut-down or falsify all reporting. Remember, you need to be a party member to be a journalist in the CCP's China, and all other information channels are being scrubbed..

Stall and gather seams to be the global political game.
If much higher stats came out the global money system would take a massive hit, which would hinder everything and could be bigger than the WuFlu. Imagine people stocking up on credit cards and then countries go on lock down and people haven't got the bucks to pay it back... Invoices will be paid late to push the cash flow down the road. Interest rates rise as no one wants to lend out dollars.

Has anyone seen what's happened on the Diamond Princess. Yesterday there were 10 cases aboard and now 41 additional confirmed cases! I really hope the authorities in NZ are preparing for this. They should be sourcing thousands of oxygen tanks, and preparing to use school halls as makeshift hospitals.

Read this, you might now think it is 'fearsomely ugly'

"Set up a 24-hour duty system. During these wartime conditions, there must be no deserters, or they will be nailed to the pillar of historical shame forever," she said. CHARMING!

https://www.nzherald.co.nz/world/news/article.cfm?c_id=2&objectid=12306774

That's full on for a nothing to worry about flu Fritz!
Hell, if that is legit, it another notche or three above what they are doing presently.

Ha ha
I have always said the societal and economic impacts of this will be big.
Having said that, the health impacts are starting to look worse than I was thinking. They might land somewhere between you and me :)

Great, I thought you and Gummy were on X's payroll there for a bit, lol. Keep going mate, you'restarting to get it..
It was only a few weeks ago that a good portion of us were keeping a very close eye on numerous global situations that if any one of them esulated it was going to get drastic.
Troops massed on the HK boarder, credit bubbles, impeachment, trade war... this is potentially bigger than all them thrown into a sack of cats and then throwing a bucket of water on top.

Rumour has it that Chuck Norris is concerned.
Not for himself of course but for everyone else.

Nice one, I get it

The big question is do you really trust China's leaders to reveal the whole truth of the Virus?

Several blogs all stating the deaths might 10x what is actually being reported, and speculating escaped bio-weapon vs. natural mutation. History will reveal the truth eventually. I add in that its is recorded by history that Communist doctrine is more than open to sacrificing serfs, to protect party elite and agenda. Lenin did, Stalin did (a lot), Mao did (a lot).

Crony capitalism has certainly decimated what was a thriving middle class cohort over the last 40 years, in the anglo-saxon world.

It is amazing, this late in the day, to see someone castigating 'communism'.

The was one planet full of resources. We fought over who would get them, and continue to fight over what's left. We've done that by dissing those we were competing with. It may be boss vs worker, or nation vs nation, West vs East, communism vs capitalism, corporate vs corporate.

But it's all a scrap over who gets access to resources and energy. You are dead without them. Ideological slanging-off just misses that point. Oh - and the biggest thug on the planet this last 50 years, is the USA. Just sayin'.....

China and Russia get painted as the bad guys but to compleat against the States they have to use the same tactics as the States.
The question is, would China and Russia be as bad as they are made out to be if the States wasn't playing their global domination game?
A lot of people will think that they would be even worse but it's no secret that our media has programmed us to think that

Have you read The Gulag Archipelago......I will take the USA any day

Hard to afford the US given the diversion of tax payers resources to those not particularly in need of US state welfare.

https://twitter.com/Kevin_Shipp/status/1225429419776450560

https://twitter.com/sahouraxo/status/1225529571082166272

There's never been a benign world power, or anything close to it.
Interference and bullying goes with the territory. In fact, arguably it's intrinsic to keeping an empire going.

The USA did not arrive as a budding super power until after WW1. But it had started before then when Randolph Hearst goaded President McKinley into declaring war on Spain, hence imperialism got wind in its sails. The USA has been good to have when necessary WW2 in Europe & the subsequent Marshall plan for instance. Not so good Vietnam which was not necessary and the second Iraq invasion which was not warrantable.

Syria! Truck after truck of stolen oil entering Turkey and the majority of it destined to Israel. The US did nothing despite telling the world a compleatly different story. Russia put a halt to it quick and fast.
As a result the US military and it's weapons have been exposed as not as effective as we were lead to believe and orders of Russia equipment has sky rocketed and the States is threatening sanctions if countries buy elsewhere. The threats seam to be falling on def ears as the world now views the States as not the supper power it was.

Commie China does treat its population in unique ways compared to NZ. Ask any NZ Chinese immigrant. We dont pull out your organs unless its voluntary on your driver's license after your dead. China misses the voluntary and dead bit on parts of its population.

We are still fighting over resources. Would war in the middle east exist on the scale it does without oil? Who would care about Lybia if they had no oil? Would Venezuela be under outside stress without oil? Even an article recently about US, Russia, and China all planning moon bases...why, I picking to control resources recent probes have identified there.

In Germany, data for December factory orders shrank sharply, down almost -9% compared with the same month in 2018. For an economy the size of Germany, that is a huge decrease.

Surprise! New 335 page 'discussion paper' analysis of the past two decades of unprecedented nonstop string of massive policy blunders by the ECB finds that everything is fine and ECB policy has been doing great! Needless to mention, produced by ECB-hired economists. Link

Dear Madame Lagarde, the ECB has NOT provided any support to the euro area. Since it's foundation, the ECB has adopted a unique sequence of catastrophic policies that have caused essentially ALL economic problems in the eurozone, plus some big ones yet to hit home. Scrap the ECB. Link

Repo’s Stubborn Part of the Disinflationary Tendency

On January 14, FRBNY announced that it would continue offering its short-term liquidity operations for another month, until at least February 13. In setting the scene in order to slowly wean primary dealers from its non-repo repo program, the New York branch also declared that at its term repo window the cap would be reduced from $35 billion to $30 billion beginning with the auction scheduled for February 4 – yesterday.

It was surely a shock to authorities, then, when dealers showed up and bid for just about $60 billion – nearly twice the limit – when the 14-day auction had been completed. Along with persisting overnight demand, you can begin to see why Jay Powell now thinks (hopes) that maybe in April they’ll be able to scale back. Link

Lagarde Says All the Blame Can’t Be Dumped on ECB Negative Rates

Christine Lagarde said the European Central Bank shouldn’t be scapegoated as the sole driver of rising house prices and weaker bank profitability, pushing back against criticism about its ultra-loose monetary policies.

The ECB’s deposit rate has been below zero for more than five years and looks likely to stay there for years to come, spurring concern about the negative side effects.

What else is pulling up the present value of future cash flows associated with assets and liabilities, if not lower official interest rates?

Audaxes, have you go a quick example of where "the present value of future cash flows" influences business (or is it banking?) decisions or outcomes? I just can't get my head around the real world implications of central bank rates on cash-flows.

Try these two introductory primers:

http://www.professorfekete.com/articles/AEFHowFedBankruptedInsInd.pdf

https://www.grantspub.com/files/presentations/FISHERGRANTSREMARKS15MAR17... - (particularly the section titled - Wealth effect or wealth illusion? page 5 of 8)

This wiki page discusses discounting in general: https://en.wikipedia.org/wiki/Discounting

Thanks, so the effect is strongest on insurance and retirement (funds) where decreasing rates increase not only the required cash today but also creates a deficit of cash they should have collected in the past to meet their fixed expenses in the future (being their entire cash-flow)?
In other business and and for personal expenses (for the portion of the cashflow with a significantly large "time to cash flow") decreased rates both simultaneously increases the cost of saving for future expenses today and decreases the cost of using future cash to pay for today's expenses? Which both increases expenses (depending on inflation) and incentivise everyone to be in debt (everyone seems to have figured this part out).
I tried to make those yes/no questions.

Central Banks were never really in control. As far as interest rates go they follow the market, not lead. The long term trend in interest rates is down, and they don't control the trend, perhaps just havingn some influence on the peaks and troughs. Cash flows in the real economy are determined by borrowers. Their demand for it, their ability to pay, and their crediworthiness. Snider has been speaking of the lack of Eurodollar creation for some time now. If central banks create money it has to go somewhere so ends up finding its way into asset prices, hence the term "Credit Fueled Asset Bubble". Your living in the middle of one that has been 40 years or so in the making.

The GDP of Hubei province (Wuhan is the capital city) ranked #7 among all chinese provinces in 2019. It has been paralyzed by the outbreak of the coronavirus. Other provinces like Guangdong (ranked #1) and Zhejiang (ranked #4) also took a major hit. 2020 will be an extremely tough year for the Chinese economy. And it will definitely impact NZ. The longer term disruption to global supply chain is hard to estimate.

Yes, the economic implications are sounding worse by the day.
Some of these lockdowns may go on for weeks, potentially a couple more months.

A couple of days back I stated that the outbreak reached its peak. I now believe I was wrong. This could be the big black swan for NZ and Oz economies.

I hope I am wrong once more.

Mainstream media still pushing the narrative that this is not as bad as the flu. Mainly in America from the looks of things, really this is only trying to stop the economy from going into free fall. Rather than the daily numbers update I would be more interested in the "Finish Line" and thats not where the Virus stops but the point where the world economy goes into GFC2 on steroids.

In reality, it's probably quite similar to the flu in terms of health impacts.
The problem is, you put this on top of the flu and you've got a 'two for one' impact. Flu is devastating in itself, every year. With this added on, you've basically got two flus in one winter, so there's quite a bad cumulative impact. I wouldn't be surprised if there is a 'One, two, knockout blow' at play here too. Vulnerable people having their bodies smashed by the flu, then getting coronavirus.
I haven't heard too many people talk about this cumulative impact.

If anyone has access to a hard copy of the Herald there is a great piece by Matthew Hooton on income tax policy and the election. He reckons Labour might move in that space to scupper any National initiatives, as per infrastructure.

It's all down to how she manages the economy from now on. Basically she's hasn't got much of a chance at all if she hasn't seen what's coming yet.

The door already opened wide back from when JK is at the helm.. Now any remaining cumulative money from China shall out pour to NZ to buy more lands try to avoid an outbreak back home - Vary rarely being opposed by any land owners that receive huge gain here, specially in the absence of other clever economic measures. NZ will reap what they sow.