Are we underestimating the coronavirus impact?

Kia ora,

Welcome to Monday's Economy Watch where we follow the economic events and trends that affect New Zealand.

I'm David Chaston and this is the International edition from Interest.co.nz.

Today we lead with news some think we are underestimating the economic risks China's coronavirus poses.

And first up today, there was another very large jump in the official tally of coronavirus confirmed victims and deaths yesterday, reaching 37,600 and 814 respectively. We are heading for a doubling in a week. (On February 4, the total confirmed was 20,600 with 426 deaths.) Now more people have now died from the 2020 coronavirus in three weeks than the 2003 SARS (774) in nine months.

And infection rates are now rising fast in economically vital Chinese coastal cities, far from the outbreak's epicentre, raising uncertainty over how many manufacturers will be able to resume production this week. Their Government is eyeing further delays is restarting their economy after the Spring Festival extended break. One new issue is revealing itself - the test they are using produces high levels of false negative results.

And in Hong Kong, with memories of SARS still around, panic hoarding of vital supplies is causing huge problem in the City. They are bracing for a surge in cases just like across the border.

Back in China, the economic impact of the disaster are becoming apparent. One third of SME's in a prestigious survey said they can only survive one month of this crisis before declaring bankruptcy. Another third said they could only survive eight week. Official interest rate cuts and instructions to banks to defer loan repayments are just not going to be enough to save most of them. And now experts are calling for rent reductions or rent holidays for businesses.

More locally, Westpac economists are saying we are greatly underestimating the likely economic impact in Australia (and New Zealand).

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In the US, non-farm payrolls grew by +225,000 jobs in January (of which +34,000 were for part time positions) and far better than the modest +147,000 rise in December. It was also better than the 2019 average of +162,000 per month but far less than the same month a year ago (+269,000). Their participation rate remains weak at 63.4%. Manufacturing lost more jobs (-12,000) while the gainers were healthcare (+36,000). In fact, the healthcare industry alone has added +361,000 jobs in the past twelve months. Also strong gains were recorded for warehouse workers, couriers and messengers, and cafe and fast food workers. Average weekly earnings rose by +2.5%, which is marginally above CPI inflation (+2.3%).

And their wholesale trade sales fell -0.7% in December from November (+1.5%), a decline that wasn't expected. In fact they barely reached the same level of a year ago.

The Canadian labour data was a little better. They grew by +35,000 jobs and all in full-time work. Their participation rate is 65.4%. Average weekly earnings rose +4.6% in a year, which is well above their 2.2% CPI inflation rate.

In Australia, a kind of housing frenzy has burst into life from strong competition by first-home buyers who have lifted selling prices and boosted auction clearance rates to about 80% in Sydney and Melbourne last week and this weekend.

And heavy rains in NSW are seeing their water storage reservoirs re-filling fast.

And back in the US we should note that an important mortgage rate, the 15 year FRM has now fallen below 3% (plus points) for the first time in more than three years, and that is poised to help their housing market which has been lackluster for quite a while.

The UST 10yr yield is at just on 1.58% and a -7 bps decline from this time on Friday. 

Gold has risen again, up another +US$4 to US$1,570/oz. A week ago it was US$1,583/oz so that is a small net loss last week.

US oil prices are a little lower today at just under US$50.50/bbl. The Brent benchmark has also slipped to just under US$54.50/bbl.

The Kiwi dollar will start down -½c from Friday at just on 64 USc and its lowest level since November. On the cross rates we are unchanged at just on 95.9 AUc. Against the euro we are lower too at 58.5 euro cents. That takes our TWI-5 down to 69.8.

Bitcoin is still rising, up another +3.2% over the weekend at US$10,106 and its highest level since September 2019. A week ago it was US$9,237 so it is up almost +US$900 in a week.

You can find links to the articles mentioned today in our show notes.

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