Here's our summary of key economic events overnight that affect New Zealand, with news we are heading into more economic confusion.
The lack of conviction we noted yesterday when equity markets rose is in evidence today. In early afternoon trade, the S&P500 is down a very sharp -4.6% and falling. Update: It ended down -4.9% from yesterday. That wipes out almost all of yesterday's unusual +5.0% rise and means the March decline is now -6.8% and the overall 2020 fall is -15%. From the February 19 peak we are down -19%.
The WHO has officially declared Covid-19 a pandemic.
The latest compilation of Covid-19 data is here. The global tally is now 121,600, of officially confirmed cases, up +3000 from what we reported last night. The overnight jump was from Iran, Spain and the USA. Outside the usual suspects of South Korea, Italy, Iran, Spain, France, Germany and the USA, the overnight jump elsewhere was also more than +2000. Even China saw a bigger rise than we have seen in a few weeks, but the crisis seems to be passing (despite high levels) in both China and South Korea. South Korea especially seems to have done a very good job isolating it and keeping its death rate low.
But the pandemic declaration will mean tighter global travel and trade restrictions.
And it will upend economies, ours included. Pressure will come in many forms, but one big financial one will be the stability of the financial system.
Yesterday, the NY Fed engaged in more than US$95 bln in overnight repo activity with US Treasuries, an all-time high. But at the same time they purchased another US$28 bln in mortgage-backed securities. All up, that is more liquidity support in one day than we have ever seen. Sure, some of this, perhaps even a majority, is rollover so isn't net-new. But at this level, a frightening large amount is. The Fed may seem calm above the water, but in the engine room the motors are screaming.
In China, bank lending growth slumped in February, growing at about half the level expected and those expectations included large reductions. But at least it grew. It seems to be more of a demand pullback that an unwillingness of banks to lend. Further, the quality of the lending that is being done is likely to be poor, supporting struggling businesses day-to-day needs rather than financing expansion.
One aspect that is very noticeably worldwide is the lack of major official stimulus announcements to counteract the economic impacts of the virus emergency. Canada said it would provide C$1 bln in support and the US has already announced US$8 bln. But none of this will touch the sides of the actual economic problem. (The UK is currently announcing major stimulus, but that is more Brexit related.)
Australia is reported to be readying a AU$17 bln program, however. It is reasonable to now expect most countries to ramp up such fiscal support over the coming days. But until virus caseloads start to level off and fall, consumer sentiment will keep much of it from being fully effective. There will be winners and losers from the stimulus programs as each is announced and that will distort market activity.
The UST 10yr yield is now at 0.76% up from yesterday, but still very low. The American rate curves are all much more positive today. Their 2-10 curve is more positive at +32 bps. Their 1-5 curve is little-changed at +21 bps. and their 3m-10yr curve has turned up sharply, now +17 bps. The Aussie Govt 10yr is up +6 bps overnight to 0.79%. The China Govt 10yr now at 2.68% and unchanged. The NZ Govt 10 yr is up +7 bps at 0.99%.
Gold is lower again today, down another -US$7 to US$1,648/oz.
US oil prices are still very low and have dipped from yesterday's small rise, down -US$1 to just under US$33/bbl and the Brent benchmark is just over US$36/bbl.
The Kiwi dollar will start today up +½c to 63 USc. On the cross rates we are up to 96.7 AUc. Against the euro we rising as well, now at 55.9 euro cents. That means our TWI-5 is now back up at 68.1.
Bitcoin is lower by -1.2% to US$7,770. 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 ».