Equity markets pull back; airlines retrench; China banks lend vigorously; traders reject yuan; UST 10yr yield at 1.51%; oil and gold up; NZ$1 = 63.4 USc; TWI-5 = 69.6

Equity markets pull back; airlines retrench; China banks lend vigorously; traders reject yuan; UST 10yr yield at 1.51%; oil and gold up; NZ$1 = 63.4 USc; TWI-5 = 69.6

Here's our summary of key economic events overnight that affect New Zealand, with news markets are dealing with conflicting signals.

This morning Wall Street started in full fear mode, down more than -1% in early trade and now down -0.6%. And this is despite some positive regional news. But jobless claims rose unexpectedly in the US. They have been high for a while and were expected to fall back, but they aren't.

Gold is up and a risk-off tone pervades markets. Overnight European markets also fell sharply. That was in contrast to Asian markets which rose sharply and both the ASX and NZX were up too.

In Europe, confidence is still negative but the latest consumer survey has it much less so.

Airlines say they are expecting a -13% fall in passenger traffic in the Asia Pacific region, but the bulk of that is said to be suffered by Chinese airlines. They are pleading with travelers outside China to carry on as normal. It seems unlikely however and they will get their first traffic drop in almost 17 years. The airline industry update didn't address cargo flows and that is likely to be hit just as hard.

However, the cutting of capacity has been so hard so soon, that factories that have restarted in China are facing sharply higher airfreight costs. These factory restarts aren't universal however with Hubei Province not allowed to restart until March 10.

To keep their economy functioning, companies are loading up on debt. Banks extended a record ¥3.34 tln in new loans in January, triple the December level and beating analyst expectations which were also very high at ¥3.1 tln. Their central bank also came through with another cut in their interest rate benchmarks.

On trade, Swift is reporting that the acceptance of the Chinese yuan in trade settlements was down to 1.1% at the end of 2019 and down sharply from the prior month. This is going backwards fast. The use of the USD is now up to over 46%, not so much at the expense of the yuan, but more of the euro.

The UST 10yr yield is sharply lower today and is now at 1.51%, a -6 bps fall since this time yesterday. Their 2-10 curve is less positive at +13 bps. And their 1-5 curve is more negative at -11 bps. And their 3m-10yr curve also more negative at -8 bps. The Aussie Govt 10yr is down -7 bps at 0.97%. The China Govt 10yr now at 2.93% and up +1 bp. The NZ Govt 10 yr will start today at 1.31% and down 3 bps.

Gold is still rising, up another +US$15 to US$1,622/oz today.

US oil prices are up again today, to just under US$54/bbl. The Brent benchmark is unchanged at just on US$59.50/bbl. This may seem counter-intuitive until you know that American petrol stocks were reported to be very low.

The Kiwi dollar will start today lower at just under 63.4 USc which is another -½c drop in a day when commodity currencies are out of favour. On the cross rates we are firmer at 95.8 AUc. Against the euro we are down as well to 58.7 euro cents. That means our TWI-5 is now at 69.6.

Yesterday afternoon's sharp fall in the bitcoin price has been sustained overnight and it is now down to US$9,663 which is a full -5.2% drop in 24 hours. 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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Posted this a couple of days ago but it's being updated almost every day, charts 5-10 are quite eye opening: https://www.capitaleconomics.com/the-economic-effects-of-the-coronavirus/

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No, 'full fear' would be Wall Street down 10% this morning, on a move down to a 67% correction of S&P, and that was on bubble valuations for a contracting global economy before Coronavirus had ever been heard.

Falling treasury yields are the only market signal working for some years now, on where economies are headed, recession and probably much worse (and if you want to be really scared, Neel Kaskari, president of the Minneapolis Fed, tweeted two days ago falling US 10 year yields meant confidence in the US economy - he doesn't even understand the basics: falling yields mean bond holders are expecting recession). Because of the command economy via central banks destroying price discovery completely, and investor discipline - remember risk, there's so much right now, but you wouldn't know in the orgy of buying for this latest lunatic share rally based on nothing at all in the real economies - shares are stupid, drunk on stimulunacy to an extent that is simply incomprehensible.

17
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South Korean city under lockdown after coronavirus cases surge due to 'super spreading event' ...

First South Korean city goes into quarantine ... no imagination needed on the earnings shock coming for global economy and especially NZ ... NZX up 1% yesterday. Mad as hatters, both individual investors doing that and fund managers.

https://www.newshub.co.nz/home/world/2020/02/south-korean-city-under-loc...

I'm starting to think all those compulsory fund flows from Kiwisaver are part of the problem, regarding this local branch of the global share ponzi (and I say ponzi because share markets are now totally disconnected from fundamentals and real economies, and simply represent liquidity from central banks in the most reckless form of the command economy since the Soviet command economy went down).

Does it feel better to get that out? :-p

Little bit :)

The algorithms don't consider business fundamentals.

Yes, Skynet will get us yet.

And meantime - buy houses! /sarc

not just business fundamentals - they don't recognise ANY fundamentals.

not just business fundamentals - they don't recognise ANY fundamentals.

Just numbers. So these don’t mean anything. If there was one person with Wu Flu in NZ today, and infection doubled every week, by winter that’s 1000. 1000 at the start of winter doubling every week turns into several hundred thousand or more by late July. Just numbers so carry on with share market highs.

Luck may be the only thing standing between the coronavirus and a US stock market crash
://www.scmp.com/comment/opinion/article/3050960/luck-may-be-only-thing-stan...

Excellent piece.
Clearly this is having a major economic effect and will continue to.
How major is the multi trillion dollar question....
Hold on tight

12
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Praying for a competent response from Govt. Please please be prepping like mad, building up essential medical stocks, planning for infrastructure maintenance and food distribution and planning to rapidly create a huge number of emergency beds for severe pneumonia cases. But I am not optimistic

11
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You might recall that last winter we had a shortage of flu shots - they ended up rationing them. Most important this coming flu season to plan for immunization of the entire population (and make all the immunizations free of charge). It will save the health system millions in preventing standard, seasonal flu. And the economy millions in keeping normal school and work routines underway.

Imagine the cost if every person who normally gets seasonal flu ends up having to be isolated while tests are carried out. One suspected case of COVID-19 in a classoom, and the whole school would have to be temporarily shut down and disinfected. Nightmare.

Prevention of standard seasonal flu is the way to go.

that just sounds too sensible :)

Well what do you know - just reported on TVNZ news - they've already placed the order!!!!!!

Lots of Hercules planes landing at all hours at Wellington airport lately. I think it will be Government first in line for supplies - medical staff 2nd in line...public?

lots? we only have 5 Hercules aircraft

And two of those will be in getting work done.

Good to hear you're found an interest.

https://www.thebalancecareers.com/a-beginner-s-guide-to-plane-spotting-2...

Good luck with it.

Would they double every week or every day for the 10 days when no one knew it was here yet or that they had it?

That single assumption has your starting level somewhere between 2 and 1,000 cases in the first 2 weeks.

Will the move out of Euro into USD turn into a stampede? Why would anyone choose to own Euro? Is a mega Euro bank run and currency collapse taking place, a sort of bigger version of 1998 Asian/Russian currency crisis? Crises happen slowly (that box is already ticked) and then all at once, as they say...

Both the EUSSR and the CCP or balanced on a knife edge balanced on the edge of a cliff.

The Dollar’s Demise And All That

Global dollar shortage = globally synchronized downturn. The one creates the other, and then both feed on each other. Especially since 2014

.

Posted last night: 2 Wuflu officially dead in Qom (Iran), doctor in a Qom hospital says 20 dead but no testing capability. Qom now quarantined. Had big festival 10 days ago. Obviously a massive uncontainable outbreak with 1000's infected given number of deaths. Iran and middle east are screwed. http://itwitter.co/hectorology [updates] Iran borders closed, confirmed cases in Tehran, all public transport being disinfected, Regime arresting whistleblowers weeks back, 27 dead (only 2 dead out of 630 infected so far on cruise ship indicates many thousands are infected in Iran)

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I have lived in Canada, New Zealand, and Australia where real estate is no longer affordable for many first home buyers. Inflated prices have destroyed the dreams of the citizens in these countries where empty (investment) houses are common. Governments have failed to protect the interests of the people. For first home buyers who manage to buy their first home they are burdened with astronomical mortgage repayments.
https://www.armstrongeconomics.com/markets-by-sector/real_estate/real-es...

That sums it up well.

Either the fatality rate is higher than 2%, or there are more than 100k infections.

I would put my money on the latter.

Safe money.

From the released numbers the fatality rate is now at 2.9% but that is assuming that the other 60000 recover.

I reckon the reality when its all done and dusted will be between 5 and 10%

One does get the impression that governments the world over know more than the general public do;

https://www.trip.com/newsroom/trip-com-update-on-novel-coronavirus-count...

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The domestic Chinese media has been building this optimistic impression that the outbreak is under control on a larger scale for a few days. Obviously, the authority wants to resume BAU asap across the entire country. As an optimist with caution, this actually worries me. The virus doesn't listen to the party, and they could be moving too fast on it.

You mean the virus is something the CCP can't control (if in reality they control anything).

Do you have any idea of the general Chinese pop sentiment on this? Are they believing what they're told or is this being challenged?

People I know welcome the idea with cautions. They live in places where the number of infected is low, and no new cases were found for a week at least. The semi-quarantine has created a lot of boredom to them; some of them have the pressure financially too as they could not work or run their business. My concern is around the people flow. what China has done so far is to isolate each province and limited the flow of people hence reduce the possibility of the virus transmission (tbh the authority should get some credits for doing it successfully considering the size of the population). However, resuming bau on a larger scale will make the control of people flow very difficult. Given that people still don't know enough about the virus, and there is no vaccine yet, it could be a dangerous move.

Repo market intervention and what it signals. Scary stuff from john Adams. I can see why the msm don’t want his theories getting out there! Thoughts anyone?

https://youtu.be/MrpWXZCEMkI

excellent piece.
So Adams seems to picking a currency crisis as the most likely of his 6 scenarios.
What would that mean for NZ?

This is definitely not BS

No it's for real

Yesyerday afternoon of a Kg of ABC silver $1040 at MZ Mint.
It's time to buy.

I really like how he highlights a range of scenarios.
As he says, agencies will do everything they can to prevent a collapse, but that won't be without significant cost...

So we have 1/4 of adults on happy pills, massive debt, slowing of the economy, an evil virus, a global bubble issue and our Gov't isn't good at getting jobs done.
OH look the pefect storm...

And yet plenty of people think our house prices will keep rising at a good clip

Brilliant background. Virus hunters.
PBS News Hour.
Here USA based scientists working in China, showing the local Chinese how they need be careful of bats. Ducks and bats.
See the local conditions.
They show wet markets.
Tourists walking through bat caves, walking underneath bats.

https://youtu.be/vb4oDJ4T1kE

Thing is this is 2016.

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