Here's our summary of key economic events overnight that affect New Zealand, with news uncoordinated and capricious White House policy and statements are making the virus emergency much worse.
On Wall Street, equities are in free-fall. At mid-day trading the S&P500 was down -8.5% and falling. But after lunch it pared the losses sharply and is now down 'only' -4% after the New York Fed announced new US$½ tln in short-term bank funding support. The respite was brief and they are currently down almost -7% again in mid-afternoon trade. Update: The New York Fed has raised its support to US$1½ tln. That new juice hasn't improved the equity market however which is now down almost -8% half an hour before the close. It ended down -9.5% on the day.
Overnight, European markets fell more than -11%. Yesterday, Asian markets were down between -1.5% (Shanghai) and -4.4% (Tokyo). The ASX200 dropped -7.4%, the NZX50 by -5.4%. These are all enormous moves lower and represent the end of the equity market bull run that started in 2009.
Much of the financial market gyrations of the past week don’t really make sense when lined up against one another. Something is breaking down in the workings of the financial system, even if it’s not totally clear what that is just yet.
Bond prices and stock prices were moving together, not in opposite directions as they usually do. The usual safe havens aren't acting that way. That included bonds and gold.
And there were reports from trading desks that many assets that are normally liquid were freezing up, with very low trading levels. This was not only happening for Muni bonds and corporate bonds but, more curiously, also of US Treasury bonds, normally the foundation of the global financial system.
Yesterday, the NY Fed engaged in more than US$95 bln in overnight repo activity with US Treasuries, equaling the prior day's all-time high. At the same time they purchased another US$37 bln in mortgage-backed securities and +30% more than the previous day. All up, that is another new all-time record. Liquidity support at these levels indicates extreme stress, and given the US Administration's embarrassing missteps, its likely to get worse and quickly. The growth in liquidity support seems as exponential as the rise of the virus in the US.
In an irony release, the US Fed released data that showed American household net worth rose to a record US$118 tln as at December 2019. You can be sure it has fallen hard from there now.
Across the Atlantic, the policy committee of the ECB met and left its interest rate settings unchanged. But it did announce a very major increase in its QE program.
The latest compilation of Covid-19 data is here. The global tally is now 127,900 of officially confirmed cases, up more than +5000 from this time yesterday. Most of those additions are in Italy, Spain, France, Germany and the USA all up +35% in one day. While it is true that these absolute growth numbers aren't large in proportion to the size of their populations, the sudden spurts indicates authorities there aren't or weren't in control of the spread. And mutations in the virus are growing.
The trigger to today's shocks is a White House that is flailing with incoherent policy announcements. This is the time for cooperation and coordination, hallmarks of leadership, but the Americans are acting in the reverse and the opposite of leadership. The markets sense the vacuum and vacuous 'policy'.
Expect a tide of bankruptcies and close-downs.
It's not all 'down'. In Canada, lower interest rates have sent their housing markets into a frenzy. American mortgage rates tumbled to new lows as well although there isn't the same housing market rush there.
In China, their car industry collapsed in February even if they seem to be getting on top of the virus control. The economic impacts might last longer than the virus itself.
The UST 10yr yield is down at 0.71% and an -11 bps fall from its official fix yesterday. The American rate curves are even more 'positive' today. Their 2-10 curve is positive at +32 bps. Their 1-5 curve is little-changed at +21 bps. and their 3m-10yr curve has turned up sharply, now +37 bps. The Aussie Govt 10yr is down -1 bp overnight to 0.78%. The China Govt 10yr now at 2.68% and unchanged. The NZ Govt 10 yr is up +4 bps at 1.03%.
Gold has tumbled today, another indicator that markets are reacting in weird ways. It is down to US$1,590 which is a -$58 plunge or -3.5% in one day, bitcoin-like.
US oil prices are still very low and have dropped from yesterday, down -US$1.50 to just under US$31.50/bbl and the Brent benchmark is just under US$33.50/bbl.
The Kiwi dollar will start today sharply lower at 61.1 USc and a -3% overnight devaluation. It is now at its lowest since May 2009. On the cross rates we are actually up to 97.2 AUc, a +½c rise overnight as the Aussie dollar is hurt more than us. Against the euro we relatively unchanged at 55.2 euro cents. That means our TWI-5 is now under 67 and a -100 bps fall overnight.
Bitcoin has been dumped by 'investors' today, down -22% to US$6,082. And it is now below NZ$10,000 for the first time since May 2019. 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 ».