Here's our summary of key economic events overnight that affect New Zealand, with news we had a dairy auction overnight that was impressively resilient.
But trumping all other news, the US Fed has made an emergency, out-of-cycle rate cut. It has reduced its benchmark upper-bound by -50 bps to 1.25% solely on the basis of the "material risks" to the US economy that the economic effects of the coronavirus pose.
The immediate reaction hasn't been positive - it just seems to have reinforced the sense of risk. Equity prices are falling, benchmark bond yields have dived, and gold prices have jumped. These are clear risk-off signals.
Meanwhile locally, there has been another dairy auction overnight and the results are resilient. Overall they are down -1.2% in USD terms but up +0.3% in NZD terms. While food-service commodities like SMP (-3.2%) and cheese (-4.7%) fell, the large WMP product, that has more of a consumer base, slipped only -0.5%. Butter rose +1.0%. Volumes sold were on the low side due to the seasonal shift, but actually +7% higher than the equivalent auction last year.
Back to the international situation, Wall Street is in retreat again, down -2.5% so far today and this was despite a spectacular rise yesterday. Markets sensed (or had inside information) that the US Fed would make some kind of policy move and jumped +4.5% at yesterday's close. That positive vibe lasted until the Fed announcement, then it has been downhill again. Since the start of February, the overall decline is now -6% and in the past two weeks it has been more than -10%.
There were no surprises in European or Japanese data overnight. European equity markets rose about +1.1% while Tokyo fell -1.2%. Shanghai was up yesterday by +0.7% and Hong Kong was flat. The NZX50 posted a strong rise yesterday, the ASX200 a lesser rise.
In Australia, the RBA cut its policy rate by -25 bps for the same reason as the Fed, and markets are now expecting another cut in April.
Rate cuts by central banks at this time seem odd. The policymakers there must know that the global economy is facing a supply shock and they are acting as though it is a demand shock. The world economy is suffering because China stopped to tackle the virus threat, not because consumers stopped spending. That is only an after-effect. Any economics student can tell that rate cuts are very unlikely to have any influence in a supply shock situation. All they are doing with rate cuts is reinforce the sense of foreboding, making the economic effects on demand worse. However, central banks seem to be in a herd mentality at present and it would not surprise if the RBNZ chimed in with its own cut.
The latest compilation of Covid-19 data is here. There are now 12,163 cases outside China, a rise of +1402 overnight as the numbers jump in South Korea, Italy and Iran. A week ago that outside-China number was 2930 so it has quadrupled in a week. New Zealand seems to be doing an excellent job of keeping the virus out.
Even though cases in China have stopped growing, the economic impacts are still huge. Now observers are thinking that China growth may go negative in Q1-2020. That would be world-shaking. And its move to close its borders to protect from reinfection won't help either. Interestingly, if there is one place where they don't have it under control, it is now Beijing.
Meanwhile in Australia, the number of building consents issued in January was -10.5% lower than the same month a year ago. This means that in 18 of the previous nineteen months, there has been a decline. Compared to January 2018, building consents are down by -36%. This trend is all to do with apartment consents and their steep decline.
The UST 10yr yield is now under 1.01% 1.04%, a record low and lower by another -6 bps overnight and taking the weekly fall to -30 bps. Their yield curves are jerking around today. The 2-10 curve is more positive at +29 bps. Their 1-5 curve is much more negative at -14 bps. and their 3m-10yr curve much less negative at -8 bps. This is a market in the middle of confused transition, rather than giving signals. The Aussie Govt 10yr is unchanged at 0.76%. The China Govt 10yr is also unchanged at 2.80%. The NZ Govt 10 yr is actually higher overnight, up +4 bps to 1.05%.
Gold has jumped today, up another +US$47 to US$1,645/oz. And this is a major move back to the 'risk-off' settings it had mid last week.
US oil prices are little-changed, now just under US$47.50/bbl. The Brent benchmark is also at under US$52.50/bbl.
The Kiwi dollar starts today stronger by +½c at 63 USc. On the cross rates we are softer at 95.4 AUc. Against the euro we are also firmer at 56.4 euro cents. That means our TWI-5 is back up at 68.3.
Bitcoin is lower, now down -2.0% since this time yesterday at US$8,686. 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 ».
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.