Here's our summary of key economic events overnight that affect New Zealand, with news a global recession now seems almost certain.
Wall Street has opened the week in full fear mode with a large-scale retreat underway, the worst since 2011. In fact, at one point, the NYSE briefly halted trading for the first time since 1997 to allow traders to catch their breath. Every media outlet is recording the crash, we will focus on what it means for New Zealand. But to set the scene, the S&P500 is currently down -7.5% so far today taking its 2020 retreat to -16% and since the peak to -19%. They are following Europe which was down about -8% overnight. And in turn they followed Asia where Shanghai (-3.0%), Hong Kong (-4.2%) and Tokyo (-5.0%) all posted huge retreats yesterday. Locally, the ASX200 crashed -7.3% and the NZX50 Capital Index fell a more modest -2.9%.
(The US President blamed 'fake news' and the fall in oil prices for the stock market crash. He is also downplaying the threat of coronavirus.)
Benchmark bond yields have collapsed too, to unprecedented levels. The fear that grips markets is one where investors are focused on the return of their money, ignoring a return on their money. And although these benchmark yields are now very low, market interest rates seem to be rising. Junk bond yields are rising fast, reversing their trend, and even investment grade corporate debt yields aren't now falling anything like Government bonds. Essentially risk premiums are rising and for private transactions expect them to rise sharply as investors demand fattened premiums for taking lending risks in this environment.
In China, heavy equipment makers are reporting a -30% drop in the use of their machinery, reinforcing the slow pace of getting industry back to work there.
Australia and New Zealand's exports to China are getting more attention from the world's policy-makers as they will show how fast the world's second-largest economy is recovering. And there are positive signs. But China may no longer be the real economic problem. The world is having the correction/recession it needed to have and the one put off relentlessly by fiscal and monetary authorities. Events are overrunning them and their now-depleted ammunition. The economic clean out has begun. It will end after some considerable pain, but economic fundamentals should be in a better place. The pain is very likely to include substantially lower asset prices.
Meanwhile, the IMF is warning about slow government responses to the intensifying economic fallout. It wants to see bigger, faster and targeted responses from the major economies.
The latest compilation of Covid-19 data is here. The global tally is now 111,400 of officially confirmed cases, up +22% in a week. China's cases are up less than +1% in a week. Cases in South Korea, Iran and Italy are up +165% in a week. The number of cases in the rest of the world are up +260% in a week. Forget South Korea, Iran and Italy - the real explosion in cases is now occurring world-wide. In fact there are now 600 cases in the US (not counting their cruise ship cases) and that is up from 102 a week ago.
The fear has extended to flying and the world's airlines are in crisis mode.
But nothing reveals the flight to safety like the crash in yields for the benchmark US Treasury bonds. The UST 10yr yield is now at just 0.49% which fell -28 bps from this time yesterday, confirming off-market trading yesterday. Remember, this yield was 0.92% on Friday and 1.30% on February 27. The American rate curves are still in that strange transition behaviour we have seen for the past week. Their 2-10 curve is much less positive at +12 bps (after being +26 bps yesterday). Their 1-5 curve is little-changed at +17 bps. but their 3m-10yr curve is still negative, just less so at -2 bps. The Aussie Govt 10yr is down -4 bps overnight to 0.64%. The China Govt 10yr now at 2.59% and down -10 bps overnight to an 18 year low. The NZ Govt 10 yr is down -10 bps at 0.85%.
Gold has actually moved very little, and the small change was actually a fall of -US$3 to be now at US$1,670/oz. Go figure.
US oil prices are sharply lower at just over US$33/bbl and the Brent benchmark is also lower at just over US$36/bbl. Both these are small bounce-backs of about +US$3 from levels we saw yesterday. A year ago, New Zealand was paying US$65.60/bbl.
The Kiwi dollar will start today substantially stronger, in fact at a three week high. It is up to 63.8 USc. The greenback is getting trashed. On the cross rates we are up to 96.4 AUc and a five week high. Against the euro we little-changed at 55.6 euro cents. That means our TWI-5 is now at 68.1 and a minor net gain.
Bitcoin is no refuge and its slide continues and it is down now to US$7,791 and a further overnight fall of -6.0%. It is now near its lows for the year. Other cryptos have fallen just as hard. 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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