Pandemic fears grip equity markets despite first world data modestly positive; Is China restarting too soon? Malaysia in political turmoil; Aussie power grid 'critical'; UST 10yr yield at 1.36%; oil dives and gold jumps; NZ$1 = 63.5 USc; TWI-5 = 69.5

Pandemic fears grip equity markets despite first world data modestly positive; Is China restarting too soon? Malaysia in political turmoil; Aussie power grid 'critical'; UST 10yr yield at 1.36%; oil dives and gold jumps; NZ$1 = 63.5 USc; TWI-5 = 69.5

Here's our summary of key economic events overnight that affect New Zealand, with news investors are running for the hills.

Fear is gripping the market today. And it is the fear that world trade is under threat. Wall Street is down sharply. Gold is up sharply. Investors are piling into benchmark bonds. Rate inversions are larger.

The first signals started on the NZX yesterday, which was down -1.8% and the ASX200 fell even harder, down -2.3%. Key Asian markets took the cue with Hong Kong down -1.8% and Shanghai was down -0.3% (despite 'home team' support). Tokyo was closed, so expect a very sharp drop there when it re-opens today. Then the Europeans took a bath with most markets down -4% overnight.

Wall Street can't ignore the signals. In midday trade it is down a massive -100 points or -3.6%, a move that wipes out all of February's gains. On that basis, it's not critical, but it is a fearsome signal all the same.

It is a market sentiment shift not supported by some domestic data. The Chicago Fed's National Activity Index for January improved from December, even if it is still quite negative. The Dallas Fed's regional factory survey for February is also somewhat positive.

North of the border, Canadian wholesale trade in December also showed a modest improvement.

Across the Atlantic, the IFO sentiment survey also reported a pickup in sentiment for February. But it is hard to see these levels being sustained if world trade falls further.

In China, the drive to restart the economy is also coming with rising fear. Putting large workforces back to work too early risks mass reinfection and there is evidence this may be happening in steel mills in Wuhan.

The latest compilation of Covid-19 data is here. There are now 2208 cases outside China. A week ago that number was 756 so it has trebled in one week. China may be getting on top of a situation its leader calls 'grim', but outbreaks elsewhere, especially now in South Korea and Iran, are unsettling. The fear of a pandemic is much greater than a one-country epidemic.

One reason for the selloff today is that investors are becoming increasingly nervous about the ability of central banks to protect them from the economic impacts of a pandemic virus. It will be up to governments to come up with targeted fiscal policies now and these could well have beggar-thy-neighbour aspects in the rush to 'do something'. The recent tariff war showed how easily politicians succumb to that sort of cheap policymaking.

Savvy investors normally buy-the-dips, but there is evidence this may not happen today. Warren Buffett isn't buying, although he is holding.

In Malaysia, political turmoil has gripped their Government forcing their 94 year old prime minister to resign and call early elections. He carries on in a caretaker role.

In Australia, the security and reliability of their power grid is now at a "critical" status even as power prices start falling. (See page 8.) Climate change, surging green energy sources, and faulty regulation are all conspiring to undermine what they have in place.

The UST 10yr yield is sharply lower again, now just on 1.36% and lower by another -11 bps overnight. Their 2-10 curve is less positive at +12 bps. And their 1-5 curve is more negative at -15 bps. and their 3m-10yr curve has also shifted much more negative at -23 bps. The Aussie Govt 10yr is lower at 0.89% and down -4 bps overnight. The China Govt 10yr now at 2.88% and down -5 bps. The NZ Govt 10 yr is at 1.22%and that is a -4 bps overnight fall.

Gold has had another sharp rise today, up +US$30 to US$1,673. The yellow metal is now up more than +10% since the start of the year. (And +21% in NZ$ terms as our exchange rate has fallen away over that period.)

US oil prices are also sharply lower overnight at just over US$50.50/bbl and that is a -US$3 drop. The Brent benchmark is also lower at just under US$55.50/bbl. It is all driven by demand fears.

However, the Kiwi dollar will start today unchanged at 63.5 USc, cementing in last week's fall. On the cross rates we are up slightly to 96 AUc. Against the euro we are also unchanged at 58.5 euro cents. That means our TWI-5 is still at 69.5.

Bitcoin is now at US$9,889 which is a -1.9% fall 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 ».

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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Thats an absolute must read for some of the ever-bulls

warren buffet always holds he believes in the long game, it will be interesting to see WHEN he buys as he has a lot of cash and has commented that stocks are over priced.
he will be watching closing and i have no doubt he will top up his favourites when they hit his price point.
there will be another big drop as soon as they finally call it a pandemic (which it already is)

I personally am not a share trader any more but if I was I would not worship/follow another investor like this. I would use completely independent thought.

You wouldn't follow the teachings of a man that is all about looking at the true value of a company, in terms of its ability to generate future cashflows?

Either that or insider trading.... who knows

Buffet does not have sole claim to that concept! Everybody will say that they use that same philosophy.
If say, he was to publish his personal decision making spreadsheet, the key to whether it would come up with the right answers would not be the spreadsheet itself, it would be down to the experience of person putting data into it, their ability, their knowledge of the particular industry, their knowledge of the competitors and their backing, future tax and tax change implications, the ability to forecast future market conditions eg finance rates, global things like which wars may be likely and their effect on that industry, future foreign currency movements etc.
And not the least luck.
Of course there has been the tailwind of quantitative easing which has made him look good.
Follow him (along with the other hundreds of millions of people) if you will. Personally I think that applying your own thoughts to the above (and more) may be a more worthwhile thing to do.

yip … leverage
And we are reaching the end of the road
which is why warren is stumped

Money is debt is wealth is leverage
Money requires interest bearing which requires ever increasing leverage
we aren't short of money or cash warren
we are out of resources to leverage

The forecast build cost of the Waimea dam has blown out by an estimated $25 million to $129.4m. Tasman District ratepayers may be on the hook for $23.5m of that expected cost increase for the dam.

Makes a mockery of the recent suggestion by contributor Guy Trafford that Government listens to partisans, not scientists.
As per the warning from economist Peter Fraser at the outset -

"Put a 10 per cent contingency on that – I think, that's probably pretty conservative," Fraser said. "Let's be honest, it's $100m by the time the ink's dry."

https://www.stuff.co.nz/business/98401122/waimea-dam-project-doesnt-stac...

I'm increasingly convinced that all major projects should be quoted as a function of their approval date in order to take into account the cost of delayed decision making. Why is anyone surprised that projects keep running over when the commercial construction inflation rate is 4.3% and so many of these projects are delayed by years in the approval stages? I'm not saying they should be railroaded through but at least the cost of the lack of efficiency in council and government decision making would be clear.

Oh the ole council beat up again!
Sure,they are far from perfect. But many of the construction firms are pretty hopeless.
There's systemic failure.

if I remember correctly it took some arm twisting to get the council to agree to this, Mr Jones put some muscle into it, perhaps examining some of the big users would have been a better option. I don't think the cost overruns have finished yet.

I totally agree there is systemic failure in the construction industry - no arguments there.

In the case of this dam much of the delay has been due to ratepayer and environmental opposition over a number of years so that certainly can't be blamed on the council however discovering a cost increase after a decision has been made is simply poor decision making especially when the economics and burden to the ratepayers was a key sticking point.

Numerous large scale government and council funded projects (and private) are often delayed by years - just look at the Christchurch rebuild. People have a tenancy to delay hard decisions especially when the cost of not making a decision is not apparent - there's simply no time pressure and it skews economic decision making.

Additionally in large organisations (except for consulting firms) the cost of time/internal labor is generally not tracked which can lead to perverse decision making processes and significant internal labor expense in preference for a relatively small capex outlay.

These elements in them selves are a systemic issue which occurs when decision makers are not exposed to the true costs of their actions (or lack there of).

Our council pretty much stuffs up everything it touches so it's hard to blame rate payers for being gun shy.

But according to the builders the only reason for the overun is the geology of the rock being unsuitable for drainage. Nothing to do with delays. Geology was bought up by the objectors and simply ignored as wrong by the so called experts as we're objectors belief again correctly that costs would overun enormously.
Are you saying objectors shouldn't be allowed to point out obvious flaws?

I worked in the Richmond ranges when i was young and they are one tough piece of rock. I used to get vertigo mustering and I never got it when i walked over the Himalayas to the Tibetan Plateau but I did start at 85kgs and come out at 59 kgs.

I get vertigo when I see Phil Goff appearing on the news at 6.

I don't have a TV, problemo solved.

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A privately pushed project being built and costed privately with a council railroaded into it and it's all the councils fault. No one, not a single person said at the time it was likely to over run and cost the council dearly , oh no that's right they did didn't they.

There was me thinking it was because of the population had increased 40% in the last 20 years.

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Harping back to yesterdays proposal to allow education to self manage isolation for returning students.
I have experience of isolating students for chicken pox and one other outbreak and my opinion is policy and procedures, self isolation, is bordering on farce. The students don’t have the motivation to self isolate and only the police or military could achieve it.
Shame we can’t keep travel bans in place until a vaccine is a possibility.
Our bet is Auckland will be the first affected, international airport with high concentrations of students.

Managers of academic institutions are
Shows the pressure these orgs have put themselves in chasing the foreign student on immigration pathway.

And now willing to cut corners public health wise to save a paper surplus and save face.

Flu wise Here is some background.

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3291411/

1957 Asian flu and 1968 Hong Kong flu.

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The state of intelligentsia - "Western Sydney University is offering $1,500 payments to Chinese students to help fund travel packages to third-country transit destinations to get around the federal government’s coronavirus ban."
https://www.theaustralian.com.au/higher-education/western-sydney-univers...

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What a flawed industry our tertiary education has become! Farsical.

If she lets them in and there is an infection outside it is on her head.

Yep, "surging green energy sources" will certainly have a detrimental affect on the reliability of power in Oz.

Yes, that policy framework is already having people in Melbourne turn off AC on hottest days for fear of brownout.
Terrible public policy delivered before your eyes.
And then your got the transport/roads there too.
Terrible policy outcomes.

A lawmaker in Iran said yesterday that there had been 50 deaths in Qom, 7 yesterday alone. There are generally about 1-200 infections per death (if other countries are a guide) so at least 5-10000 infected in Qom, and given time that has taken to grow there will be vastly more though Iran and it's neighbors. Ie likely 10x number of infected outside of China as officially notified. http://itwitter.co/BNODesk/status/1231868318635741184

Associated Press seems to confim the same

https://twitter.com/AP/status/1231865962900660224

One reason for the selloff today is that investors are becoming increasingly nervous about the ability of central banks to protect them from the economic impacts of a pandemic virus.
Exactly:

Cenral banks stand ready to adjust the temperature on this globe, fight populism, and assist in health issues.

Too bad their track record of their actual mandate is disastrous. Doesn’t predict positive outcomes. Link

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Will this be the start of the painful financial recession we have needed for a few years but central banks have been too afraid of? I certainly hope so. Not because of the short term pain, but because it is needed to get companies productive again, to remove waste within still successful companies and take out as many zombie companies as possible. The longer we wait, the worse it's going to be, we should all hope this is the start.

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Agree, and maybe an end to globalisation as we know it. If things stay the same the futures pretty grim in my opinion.

Your comment sounds ideal but in practice, globalisation will be back slowly but surely. Things are to stay the same because most Western countries lack the vision to change anything; a viral pandemic isn't going to change that.
Take NZ for example: you think we could produce locally all those goods and services required to maintain our current living standards, given we are struggling to provide basic shelter to tens of thousands of our population.
It is taking large quantities of foreign money, migrant labour and imported goods to bring housing construction up to a reasonable scale.
How many shipments of bulk WMP, logs and beef do we have to send out to the Chinese in order to afford a return shipment of latest Macbooks and iPhones?

I think the end of globalisation is too big of a call and an over-reaction. Beware to moderate your doom instinct, recency bias can take over your thoughts making you think the end is nigh. Look at all previous financial disasters and realise people sort it out in reasonable time frames, markets and governments stabilise and growth comes back.

That's been the problem of the past decade or so - all asset markets are completely distorted through non inflationary money printing.

Looks like the plunge protection team better get protecting.. or trying at least.

"Wall Street can't ignore the signals. In midday trade it is down a massive -100 points or -3.6%..." -- DOW is now down more than 1,000 points to give up its gains for the year?

S&p 500 down 100, Dow down 1000. Different indices, although s&p is rallying a bit, now only down 92

"The time to buy is when there's blood in the streets." - Baron Rothschild

It's only a small rip at the moment, the virus and debt will get to work on it soon enough.
Wait for deaths in the States and a break out in infection numbers and it'll go again.
After that the debt balkon will go to work while everyone is in lock down.

waiting for the property hawks to come out and say see we told you if you own rental houses you don't have to worry about the world markets,

that said sharetrader, if you are not leveraged, then a house is as good or bad (almost) as anything else at present - gold aside and specific shares excepted of course. Anyone not in gold should be looking at the brief dip as of now. It won't be down for long.

Houses will go down as well. Everyone keeps ralking about housing demand, the prices will not go down. There can be all the demand in the world but if there is limited money, the price goes down.

Quarantine is actually a Venetian word meaning 40 days. Italy is very vulnerable with its burgeoning elderly population - one of oldest medians in world. With 100's now known to be infected (and likely 100's more undetected) it seems inevitable that it has been spread to Europe - just a matter of time until those cases start deteriorating and getting noticed.

Plenty of masks in Venice this time of year

"Is China restarting too soon?" There is no vaccine to prevent people from the infection, and there is no specific drug to help the patients. Isolation is the only mean to battle the spreading. The condition is simply not ready. Resuming BAU on a large scale could jeopardize all the effort Chinese medical staff and the world have put in to contain the virus spreading so far. Thou a paralysed economy could be worse than the epidemic to the Party, it could create big political fallout. They might have decided to risk people's lives instead of taking political risks.

Kills about 0.2% of workers given good treatment. Maybe 0.5% given no treatment. Kills mostly older people - who are economically inactive. Bad, but not catastrophic long term for their economy except for the costly down-time of everyone being sick and managing the epidemic. I suspect PRC know it is going to get everyone, just want to slow it down to reduce death-toll from 2-3% to 1% .

Until it mutates and causes problems in healthy young people as well.

It's actually more likely to get less pathogenic with time. Dead and bed-ridden people aren't very good at spreading diseases, and the main aim of any virus is to replicate.

The median age of deaths is 65 so half havnt reached our retirement age and therefore are still considered productive

With 20% of cases requiring enhanced care and 5% requiring critical care this outbreak threatens the overall ability to care for the sick. We dont have enough hospitals, doctors or nurses for that type of care if it raveges through the population

This is the biggest risk to mankind of our lifetime and it will be a Pandemic if its not already.

The next 4 weeks are going to be cruical and every nation on earth should be throwing the kitchen sink at the problem now and giving Iran, Italy, Japan and South Korea as much help as they can.

"They might have decided to risk people's lives instead of taking political risks" that resonates so strongly with me. All despotic governments, regimes whatever you want to call them, behave the same way.

Government of the people, by the politburo, for the politburo.

ICYMI: It Took Just Two Days to Zap More Than $1 Trillion From US Stocks https://www.bloomberg.com/news/articles/2020-02-24/it-took-just-two-days...

How long before this becomes the mantra du jour?- Yellen Says Fed Should Buy Stocks In The Next Crisis

And it is still massively overpriced

I said it last week and will say it again , China's COVID-19 virus could spark the next global recession .

Except its not Chinas' now, its Europes', the middle Easts', Most of Asia.. Coming soon(ish) to a shopping mall/public bus/supermarket near you.

The way the stock markets have been behaving, this last month, its easy to forget the interconnection of the various elements of the world economy. Shares are overpriced for the risk, we know that. Houses and farms are overpriced, we know that. If things get tough, we will very quickly discover corporate bonds are overpriced as well. The chickens will come home to roost when kiwisaver balances start to plummet, the invisible fees gravy train are questioned, like they should have been anyway and the peasants revolt.

Celebrations all round:

Aussie energy, the Greens will be pleased at disrupting industry. Brownouts and bush fires and Aussie Greenies, sheesh.

RBNZ must be very happy with the soaring inflation in dam construction costs and house prices and the decline in the NZD. Success! Give the man a knighthood for his services in implementing Doublethink. Personally, I'm confused.

Still trying to blame the greens for the forest fires? Lame.

Er, no. Just pointing out the complexities of life in Aussie. NZ Greens are much nicer. Many of my friends are greenies. In fact I am a bit of an old fashioned greenie myself, organic garden, wild flower lawn, organic food, live in Nelson, prefer sailing to motorboats. Averse to diesel fumes and political greenies who tell others what they should do and think.

I was attempting humour. Yer can't make this stuff up and it's important you don't let the bastards get you down (as they used to say, in my neck of the woods, anyway).

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