Here's our summary of key economic events overnight that affect New Zealand, with news the price of gold has leapt overnight as investors are struggling to remain positive.
But first up this morning, there was another dairy auction this morning and another fall in overall prices. But the fall was small in the circumstances, down -2.85% from the prior auction two weeks ago and taking the total reduction due to the China virus to -7.6% in US dollar terms. Our currency is also lower so today's drop in New Zealand dollars is only -1.6% and the drop for the last two auctions is -4.3%. Given that we are now well into the back end of the dairy season, and some parts of the country are getting too dry, this fall in prices won't hurt the milk payout prospects too much.
World equity markets aren't so forgiving however. Wall Street is back from a long weekend and has shed -0.6% from Friday's close so far in a risk-off mood. They followed European markets who were down a similar amount. Yesterday, Shanghai was down sharply in early trade but closed flat. Hong Kong however dropped -1.5% and Tokyo dropped -1.4% in a day. Locally, the ASX200 fell a much more modest -0.2% and the NZX50 Capital Index actually rose +0.5%.
It isn't all gloom however. The New York Fed's Empire State business survey found a sharp rise in new orders in its district. That was enough to hold firms reporting their expectations at their "somewhat subdued" level.
North of the border however, Canadian factories aren't so positive with their December manufacturing sales down more than they were expecting, and holding the overall 2019 growth to just +0.5%.
In London it is more gloom with giant global bank HSBC signaled it is returning to its roots, shifting out of western markets and concentrating more on China. That will involve shedding 35,000 jobs although most of them will by sale of units rather than shutdowns. It is a clear signal that despite the current coronavirus issues, it sees a better long term future in Asia than Europe or the Americas. The change comes after yet another year of missed targets after previous reorganisations. The bank is now losing shareholder support and may be unmanageable.
In China, Covid-19 infections rose to 73,500 and deaths to 1875 and a higher rise than for the day before. Exports from China seem to have ground to a halt. Fewer than a third of China's migrant workers have returned to work. And its a very tough situation for airlines flying China routes.
The UST 10yr yield is falling today and is now under 1.56%, a -3 bps drop. Their 2-10 curve is less positive at +15 bps. And their 1-5 curve is more negative at -9 bps. And their 3m-10yr curve also more negative at -6 bps. The Aussie Govt 10yr is down -3 bps at 1.03%. The China Govt 10yr now at 2.92% and unchanged. The NZ Govt 10 yr will start today at 1.33% and also down -3 bps.
Gold is up +US$22 to US$1,603/oz in very sharp risk-off move in New York today. This is the first time the yellow metal has been above US$1,600/oz since 2013.
US oil prices are now at just under US$52/bbl after a small fall overnight. The Brent benchmark is also lower just over US$57/bbl.
The Kiwi dollar will start today lower by -½c at just over 63.9 USc. On the cross rates we are lower too at 95.5 AUc. Against the euro we are down at 59.1 euro cents. That means our TWI-5 is now down to 69.8 and a cumulative devaluation in 2020 of -3.2%.
Bitcoin has risen and now at US$9,939 and a gain of +2.3% since this time yesterday. 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 ».
96 Comments
May be right on 3. in terms of collatoral calls. Otherwise the "asset swap" is lowering yields and inflating the price of those assets. Credit is still being produced to purchase the assets at ever inflating prices. Sooner or later the money will chase security in a zero bound yield environment.
What are the moving averages saying about PM's trend? I haven't looked.
I think amid the optimism about the slowing of official infection rates it's important to remember that this is in the context of approximately 60% of the country being under some kind of restriction (not all as severe as Wuhan mind). At some point people will need to go back to work, China can't stay locked down forever.
But it can stay locked inside its own borders for the next 6 months, and the infection with it. As far as I can tell, there are still less than 100 cases of new infections in Europe/Americas. If we make it another fortnight without a significant outbreak outside of Asia I think it's going to become an entirely manageable localised outbreak. That is still a lot of people, and the financial impact will be large, but its not going to be a massive black swan event.
An alternative viewpoint: China's workforce will continue to be decimated by localised outbreaks, further disrupting supply chains. A number of people released from the Diamond Princess, and Westerdam are probably infected, and that will have serious consequences. The diseases infectiousness, and propensity for asymptomatic carriers will defeat contact tracing and quarantine measures, particularly in high population density areas. Japan, Singapore, Taiwan, and Hong Kong will have outbreaks that quickly overwhelm their healthcare systems, and require draconian government measures that effectively shut down the economy. We're in the very early stages of a global pandemic and the situation will continue to get worse.
@caleb ................. a pandemic like this has historically taken 6 to 9 months to spread around the globe ........ that takes us to the end of 2020 .
Just watch it take hold in the Southern Hemisphere this winter when we are all susceptible to getting infections .
The panic and resultant extreme measures on the part of the Chinese indicates that this virus is way more aggressive than what we have seen or experienced in the past , they are saying very little , and there are just too many unknowns
I keep hearing that " flu causes more deaths than this" ............. well these deaths are ON TOP OF the normal flu-related deaths , so that's no consolation whatsoever .
I would not be using public transport in Auckland this year , especially given the fact the interiors of our bus fleet are disgusting , the handles are never cleaned and the air is likely already full of floaties that can make you sick
"The panic and resultant extreme measures on the part of the Chinese"
This is similar approach to the way a chinese drives a car especially where the traffic is heavy. It's a pity when they are the one who has right of way or you are behind them.
I cant help thinking they are being excessively cautious here albeit the virus seems slightly more aggressive with a slightly higher death rate than normal
PRC aren't being cautious, their leadership has data on what is actually going on (rather than lies they are feeding to everyone), and are reacting accordingly. They don't want to kill 10's of millions of Chinese due to inaction, and the time for extreme measures is at the start of the pandemic when numbers are low, not later on when there is no stopping it.
Japan GDP Drops 6.3%, Raises Specter Of Global Recession
https://247wallst.com/economy/2020/02/17/japan-gdp-drops-6-3-raises-spe…
Those deflationary pressures contine you build. I can't wait till we all get to default on our rates, hopefully together in coordinated anarchy.
Manufacturing beef prices continue to soften, as China trade slows
https://www.beefcentral.com/trade/manufacturing-beef-prices-continue-to…
Sources told Bloomberg that containers of frozen pork, chicken, and beef (mostly from South America, Europe, and the US) are piling up at Tianjin, Shanghai, and Ningbo ports because of the lack of truck drivers and many transportation networks remain closed.
Seaports in China are quickly running out of room to house the containers and cannot provide enough electricity points to keep existing containers cold. This has forced many vessels to be rerouted to other destinations.
https://www.zerohedge.com/markets/supply-chain-chaos-unfolds-major-chin…
https://pbs.twimg.com/media/ERE3xY5UwAAvmxv?format=jpg&name=small
ANZ rural economist said last week - "The Chinese government is trying to prioritise the distribution of food and medical supplies so that is a positive".
The fake optimism from our banks continues to amaze me. They are so divorced from reality in assuming that the Chinese government will use supplies of premium-priced, grass-fed NZ beef, lamb and dairy for emergency supplies. Steak cuts and cheese that were shipped out to be consumed in high-end restaurants will be used as ration!
https://www.stuff.co.nz/business/119385590/kiwis-may-get-cheaper-meat-a…
Rates default might happen sooner than one could hope for - apparently the world has turned against China - China may react? : - https://tass.com/politics/1120699
In China, Covid-19 infections rose to 73,500 and deaths to 1875 and a higher rise than for the day before.
When I look at the released figures I see cases and deaths being slightly lower than the day before
Cases - 16/02 - 2132 17/02 - 2003
Deaths - 16/02 - 106 17/02 - 98
they ran out of test kits weeks ago, now the numbers are just matching CCP narrative.
https://www.epsilontheory.com/love-in-the-time-of-covid-19/
That may be so but why is Interest.co reporting the released figures as being higher than the day before? I'm interested in the death statistics as you don't really need a kit for that.
Deaths seem to be going down and hardly any deaths outside of China.
The study just released from China appears reasonably optimistic:
https://www.bbc.com/news/world-asia-china-51540981
Given chinese govt's love of propaganda and cheerful attitude to lying and falsifying data there is no reason to put any stock in the figures they release. Particularly when the story they so obviously want to sell (to protect the Party and their economy) is that everything is OK and they are totally in control. The way it is spreading in Japan and Singapore, with about 1000th the number of cases shows what a lie it is. China can not possibly keep track of half a million infected people and in most of china people are still out and about, going to work, using public transport etc. Exponential growth in rest of world continues unabated, 10x in 20 days.
Even so, why has David written that cases/deaths had a higher rise than for the day before.
That's all I'm asking really because :
I think it depends on what David's source was. We all know CCP cocked up big time on the coronavirus. However, given the tension between the PRC and the West (America, predominantly) in the past few years, it's natural for the West to take this opportunity and undermine the PRC as much as they can. There is a risk to trust what CCP says without any validation, though the same thing goes to the reports done by the West.
Only CCP knows the real number, others can only speculate, especially on what's going on in Wuhan and Hubei province. And there are a lot of emotions involved here too. I talk to my friends and family members living in China daily. What they have witnessed aligns with some of the things David mentioned here. E.g. they are definitely gearing up to resume bau in the northwest. Tho the southern part is still paralyzed.
World Health Organization Director-General Tedros Adhanom Ghebreyesus said Chinese data “appear to show a decline in new cases” but any apparent trend “must be interpreted very cautiously”.
That seems to just be a nice way of calling them liars.
https://www.oann.com/coronavirus-infections-slow-in-china-as-apple-warn…
I agree in some respect
Although I dont trust the Chinese date, there seems no doubt that it seems to be reasonable contained to within China other than the Cruise ship and it is encouraging that cases outside of China are not growing at a rapid pace.
In saying that I dont think we are out of the woods just yet
Yes, reasons for cautious optimism that it will have slow spread. Though how on earth with the world deal with China in future if it is endemic there and nowhere else? China would likely prefer it spread through the world so that they would not be subject to enduring quarrantine
https://wolfstreet.com/2020/02/18/is-private-equity-having-its-wework-m…
'Over the past year, I have been highly critical of the Ponzi Sector. You have businesses with no hope of ever showing profits, focused on using VC capital to create revenue growth in the hope of an IPO. As the IPO window has now closed, these companies are in something of a bind; if they slow growth to reduce losses, they become no-growth incinerators of capital and if they keep going, they may find that they cannot make payroll one day—remember WeWork?
Good read doing the rounds on Facebook. An opening teaser.
HOW KIWI'S PAID BILLIONS FOR AUSTRALIA'S HIGHEST HONOUR.
Between 2008 and 2016 there was one man who did more for the Australian economy than any other individual in the world.
He was not an Australian citizen, or American, British or Canadian.
Because of his actions, literally billions upon billions of dollars were created for Australian business, predominantly the banking industry, and this created a massive tax windfall for the Australian government.
The man in question was a New Zealander and he was awarded Australia's highest honour - The Honorary Companion in the Order of Australia, in recognition for the significant impact he had on the Australian economy.
That man was John Key.
John Key's contribution was well understood by Australian Treasury but not unsurprisingly went unnoticed by the NZ media.
https://www.facebook.com/permalink.php?story_fbid=837651553376372&id=10…
HSBC is a British multinational. What is being reported is the tip of the iceberg of HSBC's problems and it's precarious position is being touted as a potential Lehman Bros stemming from HK and China (before the onset of the virus issue). This is serious. Another of its ilk Standard Chartered is feeling extreme heat too.
Add Deutsche Bank to the list.
Technically HSBC is a Chinese bank founded in Hongkong in 1865, though it does have a British colonial history and use that to it's advantage to give it more of a western face. HSBC actually stands for "Hongkong and Shanghai Banking Corporation Limited". It's has always been a troubled bank, though it has tried to break new ground international. So perhaps now is a good time for them to concentrate on their roots and develop more in Asia.
Replying to @PositiveMoneyUK and @nz_positive
Surprise, surprise: The real point of so-called "central bank digital currency" (something nobody knew we needed) is to abolish banks.Permanent Japanisation. Growth no longer allowed.
Totalitarian control over all transactions
When will the banks wake up to what is happening? Link
I have never understood this fixation the world has with gold
Other than for adornment it has little intrinsic value , almost no industrial or medical or practical application that cannot be substituted................. and worst of all , it produces zero return .
Unless I was in a war and was about to flee and want to take something with me , I would never ever bother to buy or hold gold
Based on known reserves, estimates suggest that gold mining could reach the point of being economically unsustainable by 2050, though new vein discoveries will likely push that date back somewhat. ... Fortunately, gold hasn't run out yet and is widely considered a wise investment option for any investor.
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