China retail sales weak, but industrial heartbeat stronger; ADB issues grim forecasts; US retail sales very weak, ditto industry; German GDP shrinks; UST 10yr yield at 0.64%; oil and gold up; NZ$1 = 59.3 USc; TWI-5 = 65.5

Here's our summary of key economic events overnight that affect New Zealand, with news April retail sales reports are quite grim everywhere.

In China, their retail sales in April were down -7.5% when markets were expecting a lesser year-on-year fall and a better recovery from March to April of +6.5% for the month. There is disappointment in these results. However, Chinese electricity generation and overall industrial production did rebound in April. But the recovery probably isn't enough for Beijing, so markets are expecting more stimulus. But it could just be more debt stimulus.

The Chinese central bank has cut its reserve ratio requirement for most regional and community banks, adding to their ability to debt-fund local projects.

However it comes, steel making will be a beneficiary. In fact, over the past week we have seen iron ore prices rise to their highest of the year, and now higher than before China's pandemic slowdown started. Metallurgical coal prices have stopped falling.

But there is a key commodity stat that shows there is recovery in Chinese economic activity. In March, they used 10.6 mln barrels of oil a day. That was up from a February low of about 8 mln/bbd. In April that rose to 11.8% mln/bbd which was about its 2019 average.

However, the Asian Development Bank has issued an updated estimate that says China will suffer a -7.8% decline in 2020 economic output. That is larger than most other analysts reckon. They also say the US will suffer a -5.7% fall, Japan a -1.7% retreat, and the EU will have a -6.7% fall. They say Australia and New Zealand will be hit with a -6.0% drop.

The ADB says the current crisis could cost global GDP up to US$5.4 tln and reduce economic activity by -5.9% worldwide. It is particularly hard on countries like Indonesia. An unstable Indonesia is Australia's worst nightmare.

In the US, data for American retail sales in April shows them -22% lower than the same month a year ago (and far worse than the Chinese experience), with -16% of that American fall coming since March. There has never been such a sharp collapse in American economic history.

In March, and prior to the April disaster, American industrial sales were down -4.9% from the same month a year earlier. Inventories leapt. When the April data arrives it is likely to tell a similar story to the retail sales story. But the US Fed has a measure of industrial production for April and that fell the most ever recorded, down -15% from April 2019. Consumer goods production was down -16% year-on-year, business equipment was down -26%.

Investors can't decide whether they should react to the unprecedentedly weak data, or the fact that many governments are moving to restart their economies. Wall Street ended flat on Friday, but down -2.5% for the week. Unbelievably, the S&P500 is at virtually the same level it was a year ago. (That is the power of share buy-backs to keep prices up.)

And the US Fed issued a clear and stark warning about the risks to stock and asset prices generally. In its Financial Stability Report, it fingered commercial real estate as the sector most at risk to a gruesome repricing. They also note risks are also high for residential real estate and farmland. It sees rising risk aversion leading to depressed valuations, increased volatility, and impaired market functioning.

Another complicating factor for the immediate future of trade is that the US-China trade relationship is unraveling faster now.

In the insurance market, Lloyd's of London has said it expects coronavirus-related claims to cost it up to NZ$9 bln, its biggest payout since the September 11, 2001 attacks in the US. A third of those payouts are related to the postponement of the Tokyo Olympics. And those current losses could rise further if the lockdowns continue into the Q3-2020 quarter. Although Lloyds is a relatively small reinsurance market on a global scale, it does indicate that few companies actually carried cover for such a cataclysmic event.

In Germany, they reported their economy shrank -2.3% in Q1-2020 from the same quarter a year ago.

In Australia, new figures show 429,000 mortgages have been deferred totaling AU$155 bln. The figures take the total number of all loans deferred to 703,000, worth a value of $211 bln. More than one in 14 mortgages now have deferral arrangements in place there.

The latest compilation of Covid-19 data is here. The global tally is now 4,686,100 and up +178,000 from this time on Saturday which is similar level of increase.

Now, just under 32% of all cases globally are in the US, which is up +48,000 since this time Saturday to 1,430,000. This is also a similar rate of increase. US deaths are now exceed 89,000. Global deaths now exceed 313,000. The four countries with the most reported infections are now the US, Russia, the UK and Brazil. Peru, India, Iran and Turkey now all have more reported cases that China. India has announced a third extension to their lockdown. The pandemic has spread out of US and Europe to be a major crisis in emerging economies, places far less able to deal with it.

In Australia, there are now 7045 cases (+26 since yesterday), 98 deaths (unchanged) and an improved recovery rate of just under 92%. 50 people are in hospital there (+4) with 16 in ICU (-1). There are now 580 active cases in Australia (-4).

One additional case was reported yesterday in New Zealand, in a Christchurch nursing home. There have now been a total of 1499 Covid-19 cases identified as either confirmed or probable. Twenty-one people have died (unchanged). There are still only two people left in hospital with the disease (unchanged), and neither are in ICU. Our recovery rate is now just over 95% with 45 people known to be still infected (-4).

The UST 10yr yield is settled at just on 0.64% and a +2 bps rise. Their 2-10 curve is marginally steeper at +49 bps. Their 1-5 curve is also a little steeper at +14 bps, and their 3m-10yr curve is in the same trend and up +55 bps. The Aussie Govt 10yr yield is now 0.92%. The China Govt 10yr is soft at 2.67%. And the NZ Govt 10 yr yield has settled at 0.64%.

The gold price is higher today that where we left it on Friday, up another +US$14 to US$1,742/oz.

Oil prices are higher today as well. The US crude price is up from Friday by about +US$2.50/bbl to just over US$29.50/bbl. The international oil price is up a lesser amount to just under US$32.50/bbl. Modest rises in demand and supply retrenchments are forces behind the move higher.

The Kiwi dollar is much lower this morning and will open at just under 59.3 USc. On the cross rates we have sagged to 92.5 AUc. Against the euro we are down to 54.8 euro cents. These falls mean the TWI-5 is now 65.5 and a six week low.

Bitcoin is a firmer in weekend trading, up +2.5% to US$9,742. 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 ».