Here's our summary of key economic events over the weekend that affect New Zealand, with news the downshift in economic activity is falling to eye-watering levels.
First up, at the World Trade Organization, 17 key countries have joined together to sideline the US, reviving its dispute resolution functions with a "Multi-Party Interim Appeal Arbitration Arrangement". Those countries include the European Union, Australia, New Zealand and interestingly, both China and Taiwan.
And Singapore is reporting that trade ministers from Australia, Canada, South Korea and New Zealand have agreed to facilitate the resumption of essential cross-border travel to keep global supply chains operational.
And that is necessary as the world's factories wind down as orders dry up.
There were two April factory PMI's out for the US manufacturing sector and both fell sharply. The local ISM one however didn't fall as much as anticipated (-41) whereas the internationally benchmarked Markit one did fall more than expected (-36). In both however, it was the collapse of new orders that registered most strikingly. But neither has reached the depths of the GFC yet.
Even at these depressed levels it is clear demand is even lower and more cuts are just a matter of time.
Not helping markets is the US Administration threatening a new round of tariffs on China as a way to revive its re-election prospects.
The latest update to the Atlanta Fed's GDPNow model shows Q2-2020 shrinkage of the US Economy running at a very worrying -16%. That suggests the loss in economic activity is almost -US$1 tln in the quarter. (The equivalent New Zealand decline in the GDPLive model is -11.6% in Q2 - equivalent to -NZ$9 bln for the quarter.)
Boeing is seeking US$25 bln in bond funding to pay its bills.
And they are in a market being flooded with US Treasury offerings. This quarter more than $1.9 trillion of US Treasury issuance will be made and markets worry buyers for that sort of flood just aren't there.
But this data didn't weigh on Friday equity markets as heavily as the earnings disappointments, especially from the tech sector which was assumed to be a resilient pillar of the equities market. Apple, Amazon and Google for example flashed warning signals. More than 1000 US companies reported March earnings last week and overall they disappointed. There are another 1632 to report this coming week, almost 8,700 worldwide. Only a minority will be positive. The big trend is the withdrawal of earnings guidance even as company PR continued to try to sound optimistic. Exxon reported a -US$600 mln loss, its first in decades.
The S&P500 fell -2.8% on Friday to finish the week with a small loss. In Europe overnight they also fell on Friday by about -2% but still posted large weekly gains. The Frankfurt DAX weekly gain came in at +5.0% for the week, the London FTSE100 was down -0.1%, while the Paris CAC40 was up +4.0% for the week.
Shanghai and Hong Kong were closed for a national holiday on Friday and will be closed today too, but they had already booked good gains for their truncated week of +1.8% and +3.4% respectively. Tokyo booked a +1.9% weekly gain.
Interestingly, legendary investor Warren Buffet revealed he sold all his US airline shares recently (at a loss) as he doesn't see any viable future in the industry. His company posted a -US$50 bln loss for the quarter after his equity portfolio took a -US$70 bln loss. (See page 4.)
The Australian factory PMI fell hard (to -44) with sharp declines in new orders, production, and crucially employment. But this isn't yet near GFC levels. But the longer-running rival AIGroup version of the PMI was much more downbeat (-36). Either way, it's a tough situation.
But going the other way, China's official PMI's are both showing small expansions in the manufacturing and service sectors. Interestingly, these official surveys have tended to be more conservative than the equivalent private surveys. In any case they are reporting a small expansion in both March and April which is vastly different to what nearly every other country is experiencing.
But labour trouble is brewing in China, with strikes and demands for unpaid wages rising. China's jobless rate is about 5.9% and although stable, that is much higher than before the pandemic and the rise involves tens of millions of workers and students who now can't get jobs.
Still those pressures haven't stopped a quick rebound in internal tourism in China on their national holiday this weekend.
There seems to be renewed impetus to democracy clampdowns in Hong Kong as the Beijing screws go on.
The Japanese Markit PMI is another one to fall, but while it was notable (-42), it wasn't anything like the very large drops in the US, and is a drop nothing like the GFC (-30).
Back in Australia and according to the April CoreLogic Home Value Index results, housing values did not see any evidence of a material decline in the month, despite a sharp drop in market activity and a severe weakening in consumer sentiment. But prices did slip marginally in both Melbourne and Hobart in April.
The latest compilation of Covid-19 data is here. The global tally is now 3,476,000 and up +170,000 from this time Saturday which is a faster rising rate.
Now, just under 33% of all cases globally are in the US, which is up +61,000 since this time Saturday to 1,143,400. This is the slower rate of increase. US deaths are now more than 67,000. Global deaths are about to exceed 246,000. Brazil has now pushed China out of the top ten. It is hard to know about the quality of Brazilian data, especially given the weirdness of their President, but the official data seems to be exploding there. Likely the real situation is much worse. Sweden seems to have settled into an infection rate of +500/day and a death rate of 12%, a situation they are tolerating and have done for the past five weeks. There seems no slowing in their 'herd immunity' strategy, yet at least.
In Australia, there are now 6801 cases (+34 since Friday), 95 deaths (+2) and a stable recovery rate of just over 85%. 75 people are in hospital there (-8) with 28 in ICU (unchanged).
There have been 1487 Covid-19 cases identified in New Zealand, with +2 new cases (in an Auckland aged care cluster), and less than yesterday (+6 on Saturday). Twenty people have now died (+1 from Friday), almost all geriatric patients. There are eight people in hospital with the disease (+3), but none are in ICU. Our recovery rate is now up over 85% and stable.
The UST 10yr yield is firm at just over 0.62%. Their 2-10 curve is marginally flatter at +42 bps. Their 1-5 curve is also marginally flatter at +17 bps, and their 3m-10yr curve continues the trend at +52 bps. The Aussie Govt 10yr yield is little-changed since this time Saturday at 0.86%. The China Govt 10yr is unchanged at 2.52% because they have a public holiday. But the NZ Govt 10 yr yield has had a very sharp fall, down -11 bps to 0.62% compounding the recent selloff and we are now lower than both the Aussie and US equivalents. New Zealand swap rates ended the week at record low levels, diving at the long end.
Gold has turned up and ended last week at US$1,703/oz.
Oil prices are up marginally today. In the US, they are currently at just under US$20/bbl. International oil prices are up a similar small amount to just over US$26.50/bbl.
The Kiwi dollar fell at the end of last week by almost -1c, but has firmed somewhat since, and is now at 60.7 USc. On the cross rates we are also slightly firmer at 94.5 AUc. Against the euro we are down however to 54.8 euro cents. That means the TWI-5 is holding at 66.4.
Bitcoin is up today but by less than +1% to US$8,851. 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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