Here’s our summary of key economic events overnight that affect New Zealand, with news it’s all about economic emotions today, by markets, central bankers, and fiscal policymakers.
Yesterday’s surprise Fed rate cut seems to have been an own-goal, spooking investors rather than reassuring them. “If they had to cut by -50 bps, it must be bad” seemed to be the reaction. Equity markets fell with the S&P500 down -2.9%. But today, this same market is up +2.8% in mid-day trade is a rally that seems to be all about domestic US politics and the rise of Joe Biden. Emotion and sentiment is driving Wall Street, rather than economic data.
Data from the world’s airlines isn’t positive. January passenger travel growth was down to +2.5% year-on-year, down sharply from the +3.8% rise in December. Air cargo volumes are now falling year-on-year, down -3.4% year-on-year. The industry expects both sets on numbers to be much worse when February and March data is released.
A UN agency said that China’s exports of parts and components for products ranging from cars to cellphones shrunk by -US$50 bln in February, costing other countries and their industries lost output. The shipping data is wildly negative too.
Employment levels in the US will also be in focus later this week with the February non-farm payrolls report released. Today we got the precursor ADP Report showing for February it dropped back to +183,000. Manufacturing jobs shrank and almost half the rise was for either healthcare or fast food workers.
The widely-watched ISM services PMI was very positive, showing a good expansion. The alternative, internationally-benchmarked Markit services PMI gave an opposite view, showing the fastest contraction in the US since October 2013.
A more nuanced update of business conditions in the US will be released by the US Fed at 8am NZT via their Beige Book.
Interestingly, overall car sales in the US look like they had small growth in February.
Following the US Fed, Hong Kong was the next to cut rates, dropping them by -50 bps to 1.50%. Again, they failed to give any reason why it was necessary, other than being a follower.
And then Canada also cut its benchmark policy rate by -50 bps to 1.25%. They have inflation at their target and economic growth “close to potential”, but they cut because of what they expect Covid-19 impacts will do and “global monetary and fiscal authorities are responding”.
The latest compilation of Covid-19 data is here. There are now 13,981 cases outside China, a rise of +1125 overnight as the numbers keep on rising in South Korea, Italy and Iran. 11,045 are in those three countries (80%). A week ago that outside-China number was 2930 so it is still quadrupling in a week. An odd and unique feature of Covid-19 is that very few children seem to succumb.
China’s slowdown is less about how their factories have been affected than how their giant service economy has retrenched. More evidence came today from the private sector Caixin services PMI which dived to a fierce contraction of 26.5 which is from the February level of an expanding 51.8. This is even more fierce as the official Government services PMI which fell to 28.9. The difference hardly matters, it is almost a complete stop – apart from the FIRE sub-sector. That is the only bit still working, it seems.
However, in the huge Pearl River delta industrial zone, over 90% of workers are said to have returned to work and that involves more than 6 mln people. But there are major doubts about how much work is actually being done. And more than half of all SMEs still haven’t reopened.
Home sales in China fell -40% in February, and maybe more.
In Australia, their economy grew faster in Q4 than most analysts were expecting. It grew +2.2% pa and above the 2.0% rate expected and well above the Q3 rate of +1.8% pa. Of course, all this was before both the bushfires and coronavirus. It won’t be repeated for a long time. And there are widespread expectations that major fiscal stimulus is about to be unleashed in Australia to avoid it falling into recession.
The UST 10yr yield is now under 0.97%, a new record low and down another -4 bps overnight. Their yield curves are still jerking around trying to find a signal. The 2-10 curve is more positive at +33 bps. Their 1-5 curve has suddenly turned positive at +11 bps. and their 3m-10yr curve has held negative at -8 bps. This is a market in the middle of a confused transition. The Aussie Govt 10yr is down -2 bps at 0.74%. The China Govt 10yr is also lower, down -4 bps at 2.76%. The NZ Govt 10 yr is down -1 bp at 1.04%.
Gold is just on hold today at its higher level, down -US$3 to US$1,642/oz.
US oil prices are little-changed, now still just under US$47.50/bbl. The Brent benchmark is at just under US$51.50/bbl.
The Kiwi dollar starts today weaker at 62.8 USc. On the cross rates we are softer at 95.1 AUc. Against the euro we unchanged at 56.4 euro cents. That means our TWI-5 is a little lower at 68.1.
Bitcoin is lower, now down -2.0% since this time yesterday at US$8,686. 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 ».
