Here's our summary of key economic events over the weekend that affect New Zealand, with news the economic and behavioural impacts of the virus emergency are now starting to show and we start another chaotic week.
China's official PMI revealed a stunning contraction. In January it recorded a stall, but no expansion or contraction (50.0). But in February, it records a precipitous fall nationwide, down to a sharp contraction at only 35.7. And that is having very severe knock-on impacts. Their service sector recorded an even more severe contraction, going from an expanding 54.1 in January to 29.6 in February. That is close to a standstill in most industries. As they noted, "only the monetary and financial services and capital market services business activity indexes remained in the expansion range" with the rest frozen. New order levels were even worse.
And on instructions from Beijing, China's banks are no longer recording loans as 'bad' as a result of coronavirus economic pressures.
The latest compilation of Covid-19 data is here. There are now 7644 cases outside China, a rise of +1713 in one day. A week ago that outside-China number was 2208 so it has more than trebled in a week. South Korea, Italy and Iran have all reported a spike in cases. Of course, we now have one too, from an incoming Kiwi who traveled to Iran. But take caution with this data; China isn't adding those who test positive but are asymptomatic. And Iran's data is likely vastly higher than reported - the disease is raging there across the whole country.
The WHO has still not declared a pandemic, preferring to focus on "positive progress" in China.
However, Wall Street is still running very scared, with investors collectively consumed by a risk-off mood that is throwing up some odd reactions. Stocks were down sharply at the end of last week, benchmark bond yields reached record low levels, there is a general flight to 'safety' - and the gold price has sunk.
Trading on Wall Street was volatile, closing down -0.8% for the day, down -11.5% for the week. It was the largest weekly correction since 2008 and tops a -US$3 tln drop in capitalisation.
In the real world of economic data, the widely-watched Chicago area PMI is still contracting, but less so and also less than analysts were expecting.
The US Fed's preferred measure of inflation came in unchanged at +1.6% pa, and not making the rise that was expected. The same January data showed a surprisingly strong rise personal incomes which should have been market-positive. But consumer spending dipped more than expected, indicating American consumers are fearful of the future. These are measures of actual behaviour.
On the business side, wholesale inventories keep on falling while retail inventories keep on rising. And American trade data shows exports falling marginally in January, while imports fell slightly faster. So there was a small improvement in their merchandise trade deficit even if it wasn't significant for their economy on a year-on-year basis.
North of the border, Canada posted a better-than-expected GDP result for the final quarter of 2019 - but was still only at a tepid +1.9% pa level.
But none of this slew of basically positive data actually means much. It's is all about fear and panic by investors on how consumers are reacting to the Covid-19 virus.
The US Fed is under pressure from the financial markets to cut its policy rate, but most governors are not sympathetic to a bailout cut right now. In fact in most countries, bankers and financial industry analysts are seeking rate cuts and other monetary policy easing measures in response to the pressures - in essence, taxpayer support for their businesses. The US Fed put out a short Statement saying they will use all their tools to act if it becomes necessary.
Elsewhere, eyes are on the vast world of junk bond-financed businesses - investors seem to be fleeing quickly now and this will be existential for many if they can't roll over their debt financing.
The UST 10yr yield is now at 1.16% and lower by a sharp -31 bps for the week. And their rate curves are behaving strangely today. Their 2-10 curve is more positive at +23 bps. Their 1-5 curve is more negative at -7 bps. and their 3m-10yr curve has shifted sharply more negative at -33 bps. These are more like signs of confusion rather than indicators. The Aussie Govt 10yr is down -26 bps for the week at just 0.68%. The China Govt 10yr now at 2.80% and down -13 bps for the week. The NZ Govt 10 yr is down -20 bps for the week at 1.06%. All these are are unprecedented drops.
And gold also made a spectacular retreat at the end of last week, down -US$64 to US$1,586/oz. The expected behaviour in the face of sudden rising risks is that the gold price would jump - but it has done the opposite.
US oil prices are sharply lower at just US$44.50/bbl. The Brent benchmark is also lower at just under US$50.50/bbl. But both represent big -15% falls for the week.
The Kiwi dollar starts this week at 62.5 USc after another -1c fall last week. It is now at its lowest level since 2009. Since the start of 2020 the devaluation is down to -7.5%. On the cross rates we have held at 95.9 AUc. Against the euro we are also down nearly -1c for the week at 56.7 euro cents. That means our TWI-5 is now at 68.2 and also its lowest since 2019.
Bitcoin is now at US$8,514 which is more than an -13% retreat in a week on top of the prior week's -5% fall. 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 ».
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