Lockdowns freeze up societies and financial markets; consumer sentiment buckles; monetary authorities try usual things in big doses; EU and US infections leap; China eases up; UST 10yr yield at 0.98%; oil and gold drop; NZ$1 = 60.6 USc; TWI-5 = 67

Lockdowns freeze up societies and financial markets; consumer sentiment buckles; monetary authorities try usual things in big doses; EU and US infections leap; China eases up; UST 10yr yield at 0.98%; oil and gold drop; NZ$1 = 60.6 USc; TWI-5 = 67

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.

Germany announced new fiscal support measures and shut its borders. And Japan is readying large new measures.

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.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

Our exchange rate chart is here.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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50 Comments

Good to see its all positive this morning.. RBNZ announcement should be interesting

Especially when Mr Orr ruled out a cut before the next meeting.

Just to put things in context for people who still think COVID-19 is not much worse than flu and everyone is overreacting.

The fatality rate of COVID-19 is about 1%, but that's only when the healthcare system can keep up with demand. When the healthcare system is overwhelmed as happened in Wuhan, the fatality rate goes up to 4-5%.

COVID-19 is less infectious than flu, but because people don't have any general resistance to it because it's a new disease, hospitalisation rates are about 10x higher than flu, so it's easy for the healthcare system to be quickly overwhelmed, hence Flatten The Curve being a thing.

Swine flu in 2009 ended up being much ado about nothing, with a fatality rate quite a lot lower than seasonal flu.

Estimates are that about 61M people in the USA got swine flu and 12,500 died. If COVID-19 infects that many, the death toll would be 610,000, or 2,500,000-3,000,000 if the healthcare system is overloaded.

1918 pandemic flu had a fatality rate of 2-3%, although that was very infectious and was propelled by unique circumstances such as the end of WW1 as well as the death rate being high amongst those in their 20s and 30s and obviously medical science and general social education is a lot stronger these days so hopefully COVID-19 won't spread as much as that did.

Finally, official diagnosis of cases lags by about 5-7 days. There are probably about 50,000 infections in USA today, and that will be doubling every 2 days until they do a Wuhan style lockdown on internal movement.

References:
https://medium.com/@tomaspueyo/coronavirus-act-today-or-people-will-die-...
https://en.m.wikipedia.org/wiki/2009_flu_pandemic

Much more infectious than the flu.
"Researchers are still working to determine the R0 for COVID-19. Preliminary studies have estimated an R0 value for the new coronavirus to be between 2 and 3, according to the JAMA review study published Feb. 28.
The flu has an R0 value of about 1.3"

I've done some further reading that suggests r0 for seasonal flu is between 0.9 and 2.1, with 1.3 being the average.

The r0 for coronavirus is still very much an estimate, and r0 for any disease depends on the social environment in which it's spreading. Countries in the exponential transmission phase would obviously have an r0 towards the upper end of the estimates.

Flu seems to be quite infectious for 2 days before symptoms appear (short incubation period), whereas for COVID-19 although the incubation period can be as long as 14 days, the risk of transmission during this period appears to be fairly low.

.

So I am based in the US and I can say people are now taking the social distancing deal very seriously, but only really since Thursday of last week when the state of emergency was declared. Offices are shut down and people working remotely, people giving a 6ft buffer when walking in our neighborhood, supermarkets cleaned out as people prepare to stay home for 14+ days. The following article by the Washington post runs some great simulations on how effective social distancing can be in 'flattening the curve'. Worth a look - https://www.washingtonpost.com/graphics/2020/world/corona-simulator/

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“New Zealand's effective closing of its borders”

Possibly a rather generous use of the word “effective” – I certainly hope you are right, but am very concerned.

If we are attempting to “effectively” close our borders why don’t we do just that – close them.

The current process is prone to failure with extremely serious consequences.

Considering the border closure with China was completely ineffective it is stable door stuff. Effectively - "Saudi Arabia will temporarily suspend all international flights for two weeks starting from Sunday, March 15, in an effort to combat the deadly coronavirus, the Ministry of Interior said on Saturday."

10
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It would be more accurate to say “New Zealand's ineffective closing of its borders”. Some 'self Isolating' people known to people I know are not self isolating. It is weak and ineffective non-policy designed mainly to look like something is being done.

What do you suggest the government do, round everyone up and put them in health camps?

The threat of self-isolation is going to stop all but the most determined tourist and business travellers. Air NZ has cut their international capacity by 85%.

COVID-19 is not so bad that all travel must be banned.

Glad to hear COVID-19 isn’t so bad – perhaps those countries going into a virtual military style lock down should be advised of their apparent over reaction.

I didn't say "COVID_19 is not so bad", I said it wasn't so bad that it requires a total ban on transport. Also NZ is not other countries, we don't have any evidence of community transmission.

Furthermore you can read my comment (2nd from top) about why people *shouldn't* be treating COVID-19 like its not really different to the flu.

"we don't have any evidence of community transmission."
true - however the experience of of other countries tells us that by the time the evidence emerges it is simply too late to stop the spread , short of draconian measures ( the jury is still out on whether those actually work or not ).

In broad terms you are correct, however community transmission started in other countries a month ago or longer.

Everyone is much more alert now and there are simply fewer opportunities super spreaders (as occurred in Korea) since most large public gatherings have stopped. We also have more teams ready to do contact tracing as soon as any potential community spread is detected.

Should a case pop up, I think NZ is in a position to get on top of it in a way that most other countries simply have not.

NZ's choice is:
A/ 14 day universal quarantine + tonnes of testing now + 14 day quarantine for all arrivals ongoing - a financial hit now, then resumption of ordinary life, businesses and schools open, a lot of wealthy coming here to avoid the epidemic, could be a huge long-term high-value tourist boom.
B/ what govt are doing. Inevitable epidemic in a few weeks, Wuflu becomes endemic and need ongoing isolation measures to stop hospitals being overwhelmed, schools, social activities and many businesses closed. 1-2 years severe economic pain.

I think you will find that B is actually not going to happen. To date we have 0 evidence of any community spread. About 7 days from now it'll be quite clear if the dramatic drop in international travel that we are seeing as a result of the self-isolation rule is going to be enough to achieve your A outcome by itself, except for the high-value tourist bit, which just seems extremely unlikely. For the most part people aren't scared for their own health, unless they're 60+ or otherwise compromised.

13
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Global growth was always going to cease, permanently. At some point on that continuum, it wasn't going to be able to afford itself, presumably showing up as an inability to service debt even at 0%.

This is looking more and more like the great re-set. If not, it's a good dummy-run. It should also sound the end of the bleatings about 'free markets', given the mass run-to-mummy for government hand-outs by those who would otherwise be left alone with unfettered 'rights'.

Time to give some serious consideration to the new societal arrangement.
https://www.transitionengineering.org/

"Time to give some serious consideration to the new societal arrangement"
The opposite is true .
Time to give your hobby horses / obsessions / revolutionary agendas ( including those I support ) a rest - until we are through this crisis.

I suspect PDK's position is that we were already in crisis it just that not that many people accepted it.

Powerdownkiwi, how growth is permanently ceased? for sake of argument, if earth population is significantly decreased, then there will be room for growth. That is the whole Maltusian idea. Popluations grow faster than resources can cope. This results in an imbalance. Competition for resources and the ensued issues (diseases, wars, famines etc) collapse the population. The Phoenix cycle really.

10
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What is supposed to happen at a time of stress?
Interest rates are supposed to RISE, not fall as artificial constructs emerge to bolster a free market.
If the last 12 years has shown us anything, it's that whatever has been done to 'rescue' the markets has left us more vulnerable to any kind of shock that otherwise had to be the case.
The market has it right. Interest rates should rise. But 'wiser' heads tell us they know better...
Yes, there is a case for emergence measures - now being one. But they should be limited and short in duration.

11
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It seems nigh on impossible for emergency rate cuts and QE measures to be undone – once implemented they are ingrained – attempts at reversal will be met with howls of protest.

This mad love affair with ever increasing cheap debt is deeply entrenched – with a certain Donald Trump being one of its biggest cheerleaders.

Speaking of Donald Trump, the man is trying to woo a German vaccine researcher leading the cause against Covid-19 to relocate to the land of opportunity .
Even at a time of crisis, the POTUS is thinking of creaming large margins on a potential vaccine that could save the world from socioeconomic doom (maybe not the population doom some media players are making it to be).

https://www.cnbc.com/2020/03/15/coronavirus-germany-tries-to-stop-us-lur...

11
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Emergency response seems to morph into long term policy as taboos are broken. There are ratchet effects, where regulations are not wound back.

Classic was Britain kept egg rationing until 1954, Germany got rid of rationing in 1950. Government intervention was seen as the answer to all of society's ills in Britain, whereas in Germany it was the opposite. One country prospered and one declined.

I have a question to put out there:
Up until the start of WW1 England/Britain still had a huge class of landed aristocracy living off their landed property. After WW1 the English economy was flat broke. So the government of the day decided that the only way to obtain funds to reboot the economy was to impose a swingeing Land Tax on this aristocracy which they did. This had the effect of breaking up many of the overblown estates. But this tax did the trick, the economy resumed it's merry way and the numbers of landed gentry ( some would say parasitical landed gentry) were greatly reduced.

My question is: Should the imposition of such a wealth tax be in the tool box of the RBNZ if things deteriorate from here ?

Interest rates wont matter when credit tightens up.

I suggested a week ago that the RBNZ may adjust the OCR inter meeting This would be for the first time since 2001. They did not, much to the amusement of a few commentators that dominate this site. These commentators our investment fund label the dick swingers ,a subset of the prematurely bald men who are a subset of the religious zealots , the real estate worshippers. The RBNZ will soon cut and more, anyone believing the RBNZ is in a "better " position" than other central banks is deluded. It started 2008 with an OCR setting of 8.25 percent
The movements in the financial markets last week were extreme, anyone that had the time while the markets were open to make repeated comment last week ,(and they know who they are) has no idea what will occur in the coming months . Many "experts ", including our bank economists will make forecasts on many matters in the coming days, the first on this site will be Roger Kerr.( Hopefully he does not suggest the NZD is overvalued). Why their forecasts will have any credibility is unclear. .Last week was our best trading week in 13 years, this month our best , as is this year..Our investment strategy for New Zealand remains the same, simply that the New Zealand economy is a housing market now apparently worth 1.2 trillion dollars and with significantly higher household debt than 2008. In 18 months we see the NZD trading for a prolonged period at 0.38-0.45 USD and weaker against the JPY, . Our baseline estimate for property values is a fall of 35 percent over the next two to three years . At that time we will invest in distressed New Zealand assets.
How bear markets work, waves of attack.
https://www.youtube.com/watch?v=GOlVRHsVzE4

18
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So what were all those stress tests for, then?
Here’s the stress, and without even pausing to think it’s preemptive bailouts. I don’t want to hear anyone from the finance industry bitching about socialism, ever again.

Ha ha exactly

UN Secretary General Antonio Guterres is most concerned about his conference. What a clown. "...It is important that all the attention needed to fight the disease does not distract us from the need to fight climate change… change anything in the need to have COP26 [2020 United Nations Climate Change Conference] in Glasgow with the commitment to reach carbon neutrality by 2050. "
https://www.hindustantimes.com/india-news/can-t-overlook-climate-change-...

Yes and no.

I suspect this will do a large part of what we had to do. Our exhaust gases (of our global-level energy extraction of a finite stock) would have indeed killed us off, and we were looking stupid enough to go there.

This will at least take the pressure off, at most will deliver what he wants by the back door. He is sort of wrong, but you are much. much wronger

Well, that will solve all of our problems!
Ask yourself: Would you lend out more money to borrowers at 10% or 1%?
If the objective of this is 'liquidity' rather than just 'joining in with The Big Boys' then it's as doomed to failure as all the rest of them.
But that 1.99% terminal 2 years fixed call is looking good!

It's cured the virus already. As a result people no longer need to queue at Costco in the US.
https://imgur.com/HG78iMI

that is insane!!!!

So we only have 5 cases of coronavirus in NZ eh?

Yesterday I picked up a hitchiker from a spot I’ve used myself, it is outside a hospital by chance. I confirm I am going where he wants to go.

Do you want a beer I ask. (I’ve just been to the supermarket)
No I don’t drink, and I just got out of hospital.

I look at him a bit closer and he has a face mask around his neck and a robber glove on his right hand.

Oh what for?
Pneumonia.

When did you go in?
Friday.

What did you have before that?
A runny nose and eyes, sneezing a bit.

Did you have a cough.
Yeah that too.

When did that start.
Monday.

Have any of your family got it?
No (where did he catch it?).

You’ve probably got the coronavirus.
Looks at me blankly. (Nice fellow, but not particularly intelligent).

Drop at his rural home 20 mins drive away. Lives on 18 acres that he owns.

Earlier in the day a team mate (I went out for training with them) tells me of a conversation of Friday with a nurse that works in the diagnostic laboratory in this city. They’ve just done their first Coronavirus test, result not in yet. Maybe related, but maybe not.

Runny nose is an uncommon (~5%) symptom of COVID-19 and generally once someone is in hospital with it the median stay is 22 days, vs 12 for flu (+/-8.5 days 1 std deviation). Usually takes a week from onset of symptoms before they get bad enough for someone to be hospitalized as well.

So it's really quite unlikely this person had COVID-19 given the apparent Monday symptoms to Friday admission and release on Sunday.

His answers were a bit vague about before the pneumonia. You could be right, everyone has to assess this information for themselves. He looked healthy enough, and probably aged about 40. Might not have got it too badly. I included the fact he didn't drink as probalby a contributing factor to a mild case.

This morning i did the 'become a supporter' and gave intdotco some cash.

My bad...I should have done it years ago. Gotta keep this platform alive in these times....

Click like if this motivates you to d same...otherwise don't.

Lets give the team here a Monday Viral boost!

A useful exposition about 'exponential' from that Renaissance Man, Willis Eschenbach. The early gasps of 'exponential' are functions of short time scales and low sample sizes. The Gompertz Curve is a more useful if less clickbaity fit.

Anyone remember this advise by the WHO

https://www.statnews.com/2020/01/31/as-far-right-calls-for-china-travel-...

How corrupt the WHO is to put economies before people. They are significantly responsible for the world wide spread, they should have been promoting the shut down of travel at the very beginning

Makes me angry

Get woke. Go broke.

Fed announcing 700b in purchases of mortgage backed securities, points to extreme stress in the financial system over there.

The frightening thing is they are socialising the losses again, this time financial losses. Will those companies being bailed out have to pay back anything? Or will the money just be borrowed from the future again?

We all know the answer to that. Everyone put your hands over your eyes and just repeat after me:

House prices must never fall. House prices must never fall. House prices must never fall...

House prices may not fall, but debt in deflation will crush the holders of it. So, same effect really.

There is a breakdown in the secondary markets for MBS and UST securities. Sellers of those securities are unable to find buyers. Potential buyers have stepped to the side and staying out. Hence the Fed is a buyer of those securities. The want to keep credit markets flowing. If credit markets freeze, the economy will contract further without any action by the central bank.

'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%.'

This is not stunning, ffs. When will you editors finally acknowledge Deflation?

On the ground.
Testing.
Look at NSW for contrast.
Tested to date 20,000.

Premier Gladys Berejiklian says shortages of coronavirus testing kits were affecting NSW but warns that ultimately there will be too many people to test.

"There will be no shortage of masks, there is still a back stock of millions, however it has been stated publicly there are issues around the supply chain of testing equipment," Ms Berejiklian said on Monday morning.

https://www.smh.com.au/politics/nsw/berejiklian-says-virus-fears-will-ov...

Chris-M
Good link but you must remember the ulterior motive whenever anybody (particularly Americans) have a book to sell as in your link, or investors to convince as in the following sub-link:
https://www.youtube.com/watch?v=dcJDpV-igjs

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