Here's our summary of key economic events over the weekend that affect New Zealand, with news data is emerging that China is being seriously hobbled.
China's exports tumbled -17% in February from a year earlier in US dollar terms to US$292 bln, a sharp reverse from December’s +8% rise. Imports declined -4% to $300 bln, down from the previous month’s +16% gain. That resulted in a rare merchandise trade deficit even if it was minor. The sharp impacts of the coronavirus are doing what the trade war initiated by the Americans couldn't do - slow down their exporting prowess. The impacts in yuan were less than when converted to US dollars.
So far, China's foreign exchange reserves remain stable at US$3.1 tln.
But Chinese bankruptcies are starting to emerge, and bad loans are piling up. It will only get worse, even if the virus emergency there is topping out. The economic impacts will only grow from here. And the Chinese authorities are fighting the economic impacts with "more debt" which can't end well. And official news accounts of "economic progress" are laughably unrealistic, undermining what must be huge efforts being made to stabilise a worsening situation. All eyes are now on domestic Chinese demand levels; a sharp fall will trigger another economic shock.
Key prices of some international commodities seem to be hanging in there, although others aren't. Iron ore prices haven't dropped and neither have those for (steel-making) coal. If anything they have firmed. And just like air-freight rates, shipping rates are rising sharply. It seem s that freight capacity is being removed faster than freight demand. But prices for copper, nickel and aluminium are all now falling.
The latest compilation of Covid-19 data is here. The global tally is now 107,836 of officially confirmed cases, up +22% in a week. There are now 27,237 cases outside China, a rise of +2230 in one day. Although the numbers keep rising in the three hot spots of South Korea, Italy and Iran, they are now rising faster elsewhere. 19,763 are in those three countries but now 28% more are in many other countries. The American cases are growing quickly now. A week ago that outside-China number was 8558 so it is still trebling in a week. Inside China, the growth of reported cases has stopped.
In Australia, retail sales were weak in January, weaker than expected, dropping to a gain of just +2.1%, the slowest January year-on-year gain since 2005. This slowdown is concentrated in January which actually shrank, all due to bush fire and drought effects. None of this January decline is due yet to coronavirus.
Australia is working on an economic stimulus package to avoid its first recession almost 30 years.
In the US, consumer debt grew far slower in January than was expected. It was up +US$12 bln in the month to a record US$4.2 tln, an increment well below the December +US$21 bln and lower than the monthly average for the past year of +US$15 bln. It might be a sign American consumers don't think now is the time to raise their debt leverage.
US non farm payrolls rose by +273,000 in February and that was more than expected. But this data was collected in surveys in the first half of the month and so precede the sharp bite of the coronavirus fear effects outside China. It also displays outlier results. This last time an unusually large gain was reported, it was reversed with a sharp correction the following month. Their low participation rate (63.4%) made no progress. Hourly wage gains slipped again to +3.0% pa. Strong employment gains were noted in healthcare (+57,000), foodservice workers (+53,000), and government workers (+47,000) These three sectors accounted for about 60% of the February rise. Factory job levels slipped.
But a dramatic decline in long-term bond yields last week is scrambling the Federal Reserve’s recently updated playbook for counteracting a downturn. It also helps explain why officials’ calls for a stronger fiscal policy response could grow louder in the weeks ahead.
Wall Street was gripped with fear again on Friday and even the strong February US jobs report failed to ease the mood. Equity indexes started negative and ended down -1.7% on the day. The S&P500 ended last week, having been unable on three occasions to sustain any rally.
The bond markets are showing even more fear. Many commodities are weak although gold is firmer. Public bailout programs haven't been announced yet even though may investors thought they would by now. Now the worry is, when they come they will be inadequate. The NY Fed's overnight repo purchase activity is now at levels only before seen during the 9/11 emergency, and were at a record high on Friday. This level of support indicates the authorities are having trouble maintaining market liquidity.
The most spectacular move over the weekend was been the extreme risk aversion shown in the bond market. Demand is rocketing for the safety of Government benchmark bonds. The UST 10yr yield is now just under 0.77% which is a very sharp -15 bps drop from the previously record low 0.92% on Friday, and a stunning -35 bps dump from this time last week. Regular readers will know a -1 or -2 bps daily fall is a lot in this market. The rate curves are still in that strange transition behaviour we have seen for the past week. Their 2-10 curve is more positive at +26 bps. Their 1-5 curve has turned sharply positive at +19 bps. but their 3m-10yr curve is still negative, just less so at -2 bps. The Aussie Govt 10yr is down -5 bps for the week to 0.68%. The China Govt 10yr now at 2.69% and down -11 bps for the week. The NZ Govt 10 yr is down -11 bps for the week at 0.95%. The NZ and Australian rates also involve drops to unprecedentedly record low levels.
Gold has risen to be now at US$1,673/oz, a gain of +US$5. That means it jumped +US$101 in the past week, a rise in that time of +6.4%.
US oil prices are sharply lower at just over US$41/bbl and down more than -US$4/bbl. The Brent benchmark is also lower at just over US$45/bbl. And a long-standing informal deal between OPEC and Russia has collapsed after Moscow refused to support deeper oil cuts to cope with the sharp demand drop, and then OPEC retaliated by removing all limits on its own production. Apparently Russia is trying to knock out the US shale industry with low prices. If they succeed, junk bonds will also be a casualty.
The Kiwi dollar will start this week sharply higher, mainly on a sliding greenback, at 63.6 USc, up more than +1½c in a week. On the cross rates we are little-changed in a week at 95.6 AUc. Against the euro we also little-changed at 56.3 euro cents. That means our TWI-5 is now at 68.4 and a minor net gain.
Bitcoin has fallen hard this morning, down -8.8% from where we left it on Saturday. It is now at just US$8,292. Most of the fall has happened in the past few hours. Other cryptos have fallen harder. The bitcoin rate is charted in the exchange rate set below.
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