Equity investors ignore economic risks; Boeing pushes back restored production; Japan orders slump; Malaysia grows slower; EU output falls; Aussie risks rise; UST 10yr yield at 1.63%; oil up and gold up; NZ$1 = 64.7 USc; TWI-5 = 70.5

Equity investors ignore economic risks; Boeing pushes back restored production; Japan orders slump; Malaysia grows slower; EU output falls; Aussie risks rise; UST 10yr yield at 1.63%; oil up and gold up; NZ$1 = 64.7 USc; TWI-5 = 70.5

Here's our summary of key economic events overnight that affect New Zealand, with news investors seem to have down-weighted the China risks.

Equity markets are buying the idea that the coronavirus impacts will be short and shallow. European markets were up +0.9% overnight and so far today Wall Street is also higher, with the S&P500 up +0.6% in mid-day trade. Yesterday, Shanghai and Hong Kong rose +0.9% and Tokyo rose +0.8%. More locally, the ASX200 was up +0.5% and the NZX50 Capital Index was up a similar amount.

Much of the analysis around the longer-term impacts is circular. Certainly the RBNZ yesterday accepted the sanguine view, relying on "whole of government" analysis that the China bounce-back will be strong when it comes making up for some short-term pain.

And equity investors just assume central banks will bail out any downside market risk.

But the actual data out overnight suggests that even prior to the early February onset of coronavirus implication, there was a sharpening slowdown underway, one that this latest emergency will intensify.

Production logjams and lower commodity prices are spreading worldwide.

In the US, Boeing is now saying it won't be back in full normal production on the 737MAX for another two years. That alone will crimp American manufacturing.

Japanese machine tool orders fell almost -36% year on year in January as car-makers held off ordering. That drop is similar to the year-on-year fall reported for December.

Malaysia released its Q4 GDP data yesterday, showing growth had slipped sharply to a ten year low of just +3.6% pa.

EU industrial production took an unexpectedly large tumble in December, down -4.1% year on year when less than half that drop was expected. That takes it back to levels last seen in 2016.

The reporting of new cases of COVID-19 and the number of deaths seems to be slowing. At 45,200 officially confirmed cases, that is now less than a doubling in a week (24,500 seven days ago) but the new death count of 1118 is still more than double the 492 level a week ago.

Chinese housing sales have virtually dried up. Chinese travel has virtually halved.

In Australia, giant Aussie insurer IAG (the dominant general insurer in New Zealand) has seen its profits halve, mainly because of "exceptionally harsh" risks in Australia. To recover, premiums could face upward pressure as a result. And they are warning that they won't insure more risks exposed by the changing climate.

The UST 10yr yield is at just on 1.63% and another +4 bps rise from this time yesterday. Their 2-10 curve is still positive at +19 bps. And their 1-5 curve is still negative at -5 bps. But their 3m-10yr curve is a bit more positive, at +6 bps. The Aussie Govt 10yr is up +7 bps at 1.11% even. The China Govt 10yr now at 2.87% and also firmer by another +2 bps. The NZ Govt 10 yr is up by +11 bp to 1.40%.

Gold has risen today, up +US$5 to US$1,570/oz.

US oil prices have made another gain today and are now just over US$51/bbl. The Brent benchmark has also firmed to just under US$56/bbl. But both are still at low levels.

The Kiwi dollar will start today firmer at just on 64.7 USc. On the cross rates we are also firmer at 95.9 AUc. Against the euro we up to 59.4 euro cents. That raises our TWI-5 to 70.5 and a +1.1% rise in a day.

Bitcoin is still over US$10,000 and is now at US$10,403 which is another +1.7% rise in a day. 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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13
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"And equity investors just assume central banks will bail out any downside market risk".

Socialising the debt. Basically the story of capitalism. A classic example in Southland:

https://www.odt.co.nz/business/smelter-may-save-millions-power

while a dummy company took their waste and faded into the night.

And a govt which doesn't want to kill 'jobs' in an election year

*the story of socialist intervention into capitalism.

*more often the story of crony capitalism and regulatory capture.

Interesting comment? Is it really or is it the wealthy just expecting to be bailed out by their mates running the Government/Central banks?

Another question re Capitalism v Socialism; much of our economic system across the world including Government policies are or seem to be pretty much capitalist. But my concern is that this type of system largely rapes and pillages the middle and lower class economically, virtually creating modern types of slavery. So any form of politician who wanted to pull these systems back to the centre where all could benefit but without creating a socialist system, and limiting the power of the capitalists - would he be derided as a socialist or correctly labelled as a centrist? I note that on 3 Feb a Montana Republican, Rodney Garcia, is reported as stating any socialist should be jailed or shot. Can people even tell the difference today?

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Over the next three or four months it will be interesting to see whether Convid-19 has any impact on the (over-valued) NZ housing market. There has been many postings over the past year or so that we are at risk of external events.
However, interestingly despite the economic implications of Convid-19 already apparent, local and global equity markets (also over-valued by historic measures) are shaking this off on the basis of central banks actions for economic stimulus. This includes NZ market despite trade of two biggies - forestry and tourism - already being affected.
However, in terms of housing, this month's REINZ data due is too early to see any impact.

Good questions and points.
My view at this stage is it will have a slight dampening effect but nothing major.
But we will see.

Minimal at best but the down side is fairly large if the virus is not contained.

A surprisingly significant part of my job as an lecturer in a law school is undoing the damage done by airheaded blockchain marketers & shockingly naive practitioners/academics to law students.

Blockchain is not a useful general purpose technology. Link

With that 11 bps fall in NZ 10 yr I'm going to be whacked again today in my bond funds. Depressing but I refuse to put my pitcher into Harry Potter's magical stimulunatic money jar to pull out my share, also known as central bank backed sharemarkets (which aren't sharemarkets anymore: I've no idea what they are).

But, the Coronavirus 'infections' are coming down because the Chinese government has changed the definition :) Previously all who reacted positive as having the virus were counted as infected, coz they can spread the virus, but they are no longer being counted in official infections unless or until they are showing symptoms ... as of yesterday.

On that basis it may well cause the "cases" death rate to go up...

The chinese data has always been worthless. Well known that they have saturated their testing capacity, that crematoriums have been running at capacity for weeks, that hospitals are overwhelmed and turning away sick (which given 5-6million hospital beds in china wouldn't happen at even 10x reported 40000 infections), now they have even changed definition of 'confirmed case' so that even if tested positive you are only counted if you are severely sick. It's a full blown pandemic in china. We need strict quarantining measures on inbound flights if we want to avoid massive local pandemic costs in 2020. Flu season starts in a couple of months.

Just wondering about Bitcoin, is this now the easiest way to get your money out of China?

I heard they are using tether (a different crypto but stable as pegged to the USD). That said, there are some views that wealthy chinese knew about the virus early and stocked up on BTC (selling their yuan or chinese stocks I assume)

Thanks for the answer. Crytpos basically working as they designed but probably not how the west would like.

The rise in most of the cryptos, seems to coincide with the probable virus timeline (as opposed to the "Official" timeline).

The last big surge, also seems to align roughly with the offshore crackdown in China as well.

Probably something to keep an eye on going forwards. Any change in Crypto would appear to be a much better indicator of what is actually going on in China at any given time.

15
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The crooks at the reserve bank will never let house prices experience negative growth. Chinese plague would just be used as an excuse for "stimulus" though the "housing channel".

17
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Good grief, how can anyone buy the lie that China is trying to sell about diminishing infection rates? There are endless info leaks showing that the spread is totally out of control there, quickly becoming endemic, and that the party are just trying to minimize the economic impact regardless of the increased body count (~2% death rate means eventually 10's of million dead). Eg Shanghai has just 311 'confirmed' but their hospitals, with 100,000 total beds are already overwhelmed.

13
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Part of the problem is the game the WHO is playing. Its praise of the CCP's response, its uncritical acceptance of discredited CCP data, and studied inattention to scholarly analysis (see The Lancet) is based in the opportunity it sees to increase CCP funding for its activities. It has thrown democratic Taiwan out of the WHO lifeboat, and seems willing to debase its supposed global impartiality and trustworthiness, in hope of securing a money boost. The WHO's funding problems are widely discussed and here, it believes, is its best chance of a long-sought windfall.

11
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Calling this virus Corawhatever is another example of toadying up to China. Everyone I know calls it the Wuhan virus but WHO thinks that is portraying a bad image of China. Well yes. And until they sort out their food standards the viruses will keep coming.

China pays more than Mexico for avoidance of naming rights ;-)
https://fortune.com/2020/02/04/coronavirus-impact-beer-industry-big-brew...

The one area outside of Govt control (the cruise ship) tells the infection rate in confined spaces.
500 tested and 175 infected.
The infected prisoner transported from Thailand to England is concerning. He was in prison in Thailand, I doubt he was in a cell by himself. If he was in a place like the 'Bangkok Hilton' it will be spreading like wildfire. Not to mention the police that transported him and also being in the English prison system untill detection.
The numbers staying stable in India, Cambodia etc don't stack up to the infection rates.
If information comes out showing much higher infection rates than stated, it is unlikely that the masses will ever trust the mainstream media and Governments ever again.

big jump in PRC reported numbers today adding 30% to total confirmed cases (45k-60k) - must realize that their lies aren't credible. They are still massively under reporting (probably >10x), but at least not trying to pretend that spread is slowing like they have been trying to sell over the last week. More than 20 cities now with >100 confirmed cases. There's no real hope of stopping it.

Stock traders - where do you see the main opportunities right now?

The silence is deafening. Uncharted territory..

Sell Airline and Tourism stocks (maybe to late)?
Hold Tech Stocks
Make sure hold some Gold & BC

Healthcare, water, payments technology are all doing well. Stick to what people need and can't live without.

Check the annual reports for exposure to China I.e. how much revenue and growth from there. Apparently SARs took 9 months to sort....and it was small compared to this. This is going to be quite serious I think. 400 million people on lockdown. Not going to be pretty.

Virus effect, like any other major variable, is a ratchet effect: nothing will happen to housing for months, then big effect. Similarly to NZ economy. Not good news for Labour

Big call Mike...
It all depends on how prolonged and serious it gets.
If it effectively dies off by about May, the impacts may be fairly contained.

Thats a big ol' if right there

He's hit the nail on the head fair and square.
It's a wait and see for most but some will flick rentals to get gains out but I'm guessing it will be controlled flick so not to drop prices. No 7% increase coming now, so sell if you have a rental and have cash if the situation gets worse.

15
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It is absolute insanity that the Australian equities market hit an all-time high yesterday. They are massively dependent on a Chinese economy that has come to a grinding halt. Their govt surplus is entirely funded by iron ore sales to China. Agri and tourism, their other two big industries, very exposed to China. Still counting the bushfire costs. And their markets go up to record highs based on reports that the rate of infection might, might have slowed. Maybe. They’ve jumped the shark; any pretence that price reflects a reality beyond the actions of central bankers is gone. Unbelievable.

Br -It just reflects that those in the know see interest rates going to 0 and below.
Any dividend then is gold.

USA budget to cut funding to New Zealand. A Muppet Show.

https://amp.miamiherald.com/news/nation-world/national/article240147573....

Those $11.7 billion in cuts to foreign aid, The New York Post reports, include $10,000 for a Muppet Retrospective in New Zealand.

The question is not the infection rate, but the fatality rate. Without considering the fatality rate, it’s hard to make the decision on how to respond to the outbreak. If the coronavirus is highly contagious but less lathel, do we still need to lock ourselves down and try to contain it, or should we simply prepare for an inevitable global disease? Flu kills more people than this thing each year. but of course, no one really knows what the actual fatality rate is apart from China, tho the markets seem to believe them. Just saying...

It is a new virus and if they cannot stop it's spread it could mutate, just like the old winter flu does but no one knows how bad. China's reaction is one of fear.

Most estimates are putting it at 2-4% Raw numbers are misleading because infection shows up after a week but death takes 3-4 weeks, ie due to rapid growth in number of infections the deaths we see now are really most accurately gauged against numbers of confirmed cases 2-3weeks back. Second huge issue is that about 20% of infected need hospitalization for several weeks with pneumonia. Once hospitals are over-burdened (typically only 2-4beds per 1000population) and 20% of staff need hospitalization themselves, Then death rate will skyrocket.

I think the development of Diamond Princess Cruises is worth to follow. The Japanese authority should be way more transparent.

The diamond princess is really an example of what was happening in Wuhan a month ago. Likely tens of thousands dead there now - the hospitals were overwhelmed weeks back (turning patients away) even though they have about 3-40000 hospital beds in Wuhan.

I see the Government has announced a $300,000,000.00 "package ' for housing those in Motels .

Really ?

Where exactly does the PM plan to house these folk?

Even if she had allocated a Billion Dollars the problem would not be solved , certainly not quickly .

There are almost no houses to rent in Auckland given the popn and size of the city , landlords ( suppliers of rental stock ) are exiting the market like rats off a sinking ship , creating a further stock shortage .

The state cannot afford to buy and build homes for the homeless or the unemployable , so what will the Government do ?

They have effectively done everything they can to stop and discourage private investment in rental stock , other than to adopt Chairman Mao's solution which was to confiscate the property and publicly execute landlords in the town square, after a brief sham trial .

Given the record inward migration by people with work visas , I would suggest these new faces are renting much of the housing stock at the lower end of the market , thus displacing those folk who would normally rent those homes .

Its a crisis made worse by Government's open -door immigration policy .

And are they so blind they will not see it ?

Could or would you take a couple in your large pad Boatman?

Cheapest solution for the taxpayer is to use the $300m to dutch auction bonuses for all Kiwis willing to move from one of our cities to a foreign country. I love NZ with a devotion that only an immigrant can have but if my family was offered $200k take it or leave it before Easter then I reckon the eight of us would leave. Certainly my son would go to Australia for $10k plus a free ticket. So $300m could easily be used to expel 30,000 kiwis and it is probable that it could be paid for by selling NZ residency visas to a tenth of that number.

Boatman - silly boy!
Have you not learnt anything about Jacinda? It is about announcements; not about delivering. :)

Coronavirus: Hubei province reports sharp spike in new confirmed cases and deaths
Hubei’s new confirmed cases pegged at 14,840, nearly 10 times more than the previous day
Deaths, reported to be 242, more than double

https://www.scmp.com/news/china/society/article/3050354/coronavirus-hube...

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

Little bit of clarification

"In conformity with other provinces, starting today, Hubei Province will include the number of clinically diagnosed cases into the number of confirmed cases.
Of the 14,840 cases added, 13,332 are due to the new classification while 1,508 are new cases."

Still goes to show what is probably happening on a larger scale.