Conflicting signals

Kia ora,

Welcome to Friday'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 markets are dealing with conflicting signals.

This morning Wall Street started in full fear mode, down more than -1% in early trade and now down -0.6%. And this is despite some positive regional news. But jobless claims rose unexpectedly in the US. They have been high for a while and were expected to fall back, but they aren't.

Gold is up and a risk-off tone pervades markets. Overnight European markets also fell sharply. That was in contrast to Asian markets which rose sharply and both the ASX and NZX we up too.

In Europe, confidence is still negative but the latest consumer survey has it much less so.

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Airlines say they are expecting a -13% fall in passenger traffic in the Asia Pacific region, but the bulk of that is said to be suffered by Chinese airlines. They are pleading with travelers outside China to carry on as normal. It seems unlikely however and they will get their first traffic drop in almost 17 years. The airline industry update didn't address cargo flows and that is likely to be hit just as hard.

However, the cutting of capacity has been so hard so soon, that factories that have restarted in China are facing sharply higher airfreight costs. These factory restarts aren't universal however with Hubei Province not allowed to restart until March 10.

To keep their economy functioning, companies are loading up on debt. Banks extended a record ¥3.34 tln in new loans in January, triple the December level and beating analyst expectations which were also very high at ¥3.1 tln. Their central bank also came through with another cut in their interest rate benchmarks.

On trade, Swift is reporting that the acceptance of the Chinese yuan in trade settlements was down to 1.1% at the end of 2019 and down sharply from the prior month. This is going backwards fast. The use of the USD is now up to over 46%, not so much at the expense of the yuan, but more of the euro.

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The UST 10yr yield is sharply lower today and is now at 1.51%, a -6 bps fall since this time yesterday. 

Gold is still rising, up another +US$15 to US$1,622/oz today.

US oil prices are up again today, to just under US$54/bbl. The Brent benchmark is unchanged at just on US$59.50/bbl. This may seem counter-intuitive until you know that American petrol stocks were reported to be very low.

The Kiwi dollar will start today lower at just under 63.4 USc which is another -½c drop in a day when commodity currencies are out of labour. On the cross rates we are firmer at 95.8 AUc. Against the euro we are down as well to 58.7 euro cents. That means our TWI-5 is now at 69.6.

Yesterday afternoon's sharp fall in the bitcoin price has been sustained overnight and it is now down to US$9,663 which is a full -5.2% drop in 24 hours.

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

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