Here's our summary of key economic events over the weekend that affect New Zealand, with news the global financial system is buckling under the explosive implications of the virus threat.
The world is quickly moving to lockdown travel. New Zealand's effective closing of its borders is just one of many similar actions taken elsewhere. The trigger seems to be that Europe is now the epicenter of the spreading infection and the US is the new largest risk.
In their final Friday session Wall Street rallied +9% on the expectations of even more stimulus seems to be the driver. But the Wall Street daily rally still leaves very large losses in place. It is likely to be followed by more gyrations this coming week as sentiment goes on wild swings. And what will markets do this week? Probably fall hard as the new reality sets in.
American consumer sentiment surveys are now starting to show rising concern about the coronavirus and the economic risks. Over the weekend, normally busy places were all deserted. And people fretted about the patchworks, incoherent response by the US Government.
But at least their monetary authorities are doing what they can, even if this is a problem they can't solve. On Thursday, the New York Fed raised its support capacity by US$1½ tln to reassure markets it would provide liquidity for banks and other financial institutions as they freeze up.
And on Friday they engaged in more than US$100 bln in that support with the overnight repo activity in US Treasuries hitting US$55 bln and another US$46 bln in mortgage-backed securities. All up, that is another new all-time record and the first time ever this has been over US$100 bln in one day. It is an indicator of extreme stress in the US financial system.
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The Bank of Canada released a range of measures, including a rate cut, to support their economy. And their financial stability regulator has slashed their Domestic Stability Buffer from 2.25% to 1%, freeing up more than C$300 bln of bank lending capacity.
In China, they have added US$80 bln in liquidity support for their banking system overnight. And they have cut their reserve ratios, releasing NZ$125 bln in lending capacity. A rate cut is expected soon too. China may be getting back to work but their new problem is a lack of customers as the rest of the world shuts down. China's back-to-work status is about the only bright spot in a darkening world.
In Australia, they are preparing for 4 mln people being infected. Their Reserve Bank is supporting its markets with much larger liquidity injections, reportedly suddenly rising in the past week to over AU$8.8 bln. (It is revealed officially here, but with two days delay, but even so, that shows a sharp recent rise to levels not seen ever before.)
So, lots of bureaucratic action, but nothing that will 'save' any economy. Globally, the travel industry is on its knees.
The latest compilation of Covid-19 data is here. The global tally is now 156,400 of officially confirmed cases, up +46% in a week. There are now 75,400 cases outside China, a rise of nearly +20,000 in one day as the numbers keep on jumping in Italy and Iran. South Korea, like China, seems to have plateaued. In fact, in China they are now reporting more than 80% of all cases have recovered. But the new hotspots are Spain with a ten fold increase in a week, and the USA with a six-fold increase. Fast rises are also occurring in Germany and France. Europe seems to be the new epicenter. In the rest of the world, the number of reported cases has quadrupled in a week. Globally reported deaths are now near 6000.
In New Zealand, with borders effectively closed to passengers, the next big test will be whether schools stay open. So far here, all our handful of cases involve tourists or travelers. The RBNZ is to make a major announcement at 8am this morning.
Update: The NZX50 Capital Index has opened this morning down -1.4%.
All benchmark interest rates rose sharply at the end of last week. The UST 10yr yield is rising, which is an odd move in times of stress, but buyers are hard to find, it seems. It is now up to just on 0.98% which is +24 bps higher in a week. Rate curves have moved sharply positive as short term rates have fallen while long term rates have risen. Their 2-10 curve is much more positive at +48 bps. Their 1-5 curve has also turned more positive at +37 bps. and their 3m-10yr curve has blown out to +59 bps after being marginally negative this time last week. The Aussie Govt 10yr yield is also sharply higher, now at 1.09%. The China Govt 10yr is unchanged at 2.71%. The NZ Govt 10 yr yield is also very sharply higher, now at 1.20%.
Gold has fallen sharply, down to as low at US$1,517 at one point before making a tiny end-of-week gain to US$1,530/oz. That is a stunning weekly retreat of -US$140/oz or -9%.
US oil prices are marginally softer overnight at just under US$32/bbl with the Brent benchmark just under US$34. These represent almost a -25% drop in a week as demand growth prospects vanish and the Saudis and Russians square off in a power play. There are reports that the Saudis are selling at US$25/bbl to undermine Russian sales. Cheap oil is also undermining coal demand. And at these low prices, the US is moving to replenish its strategic oil reserves.
The Kiwi dollar starting the week sharply lower, in fact at its lowest since May 2009, mainly on a rising greenback. It is now 60.6 USc and a -5% devaluation over last week alone. The weekly fall is a very chunky -3c. On the cross rates however we are have firmed sharply against the Aussie dollar which is taking even more of a battering, starting the week at 98.6 AUc, a +3% weekly rise of nearly +3c. Against the euro we are softer by -1½c for the week at 54.6 euro cents. We have slipped also slipped more against the Yen. That means our TWI-5 is now at 67 and a +2% devaluation in a week. It also represents an overall -7% devaluation over all of 2020 so far.
Bitcoin has been seriously dumped and is now at US$5,294 after getting as low as US$5,083 which is a loss of -US$3,800 in a week. (That is not a typo.) Yes, bitcoin is down -42% in seven days! Putting that into a longer perspective, it is down almost -30% since the start of 2020. The bitcoin rate is charted in the exchange rate set below.
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