Deficits grow in all major economies

Kia ora,

Welcome to Thursday'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 of rising deficits everywhere.

First up, the US Fed is meeting and will announce its decisions at 8am NZT. We will update the results here then. Markets are not expecting them to make any policy changes today although they may explain their repo and system liquidity activity and goals.

Meanwhile, data for the American December trade balance worsened, delivering a merchandise trade deficit of -US$68 bln in the month and taking the annual deficit to -US$860 bln or -4% of GDP and an unchanged level over the past three years. December exports were flat from November and imports rose +2.5%.

And speaking of American deficits, the US Congressional Budget Office has issued debt and deficit projections for the next ten years. They say the US federal budget deficit will be -US$1 tln in 2020 and will average US$1.3 tln per year over the 2021–2030 period. Because of those large deficits, federal debt held by the public is projected to grow from 79% of GDP last year to 100% of GDP in 2030. And it will keep growing; by 2050 they say, debt will be 180% of GDP and far higher than it has ever been.

And for more deficit news, Boeing reported its first annual loss since 1997 of -US$1 bln as 737MAX costs exceed US$18 bin. It also said it would make further cuts to the production levels of its larger 787 Dreamliner aircraft, currently its main source of cash.

And pending home sales skid almost -5% in December in a surprise pullback.

[Advert]

And here is a message from our friends at Hatch.

Hatch gives Kiwis a simple and affordable way to grow their money. Kiwis can now invest in the world's most successful companies and largest funds, and now, their Getting Started Course will give you the knowledge and confidence you need to do it.

In only 10 minutes a day for 10 days, you'll be guided through everything you need to know about getting started - from setting up an account to buying your first shares.

No jargon, no boring finance stuff, no pressure and no strings attached. Best of all, it's free.

Visit www.hatch.as/course to start today.

In China, even though financial markets are all closed, eyes are turning to the scale of the economic impact. The SARS experience is the main point of reference, but 2020 China is vastly different to 2003, and this time the official response has been far more aggressive - once it got going. The central bank was already in liquidity supply more for the Spring Festival holiday, but what will be required now could exceed ¥1 tln and they seem primed to deliver that, or more, if required. Banks are expected to struggle when markets open.

Many of China's neighbours are also expected to suffer sharp economic pain as well. Further, anti-Chinese sentiment is growing in many of these countries as well.

Meanwhile, the Americans claim they have developed a vaccine for the African Swine Fever, and when available, at least that Chinese crisis will pass.

Overnight there were January consumer confidence surveys released for Japan and Germany. Both were unchanged at low levels but with signs of optimism returning.

In Australia, consumer inflation picked up marginally to be +1.84% pa for all of 2019, a rise from +1.67% in the year to September 2019. But it was virtually unchanged from the 1.78% in the year to December 2017.

But Australian retail is in bad shape with more stores and chain pulling the plug after a disappointing 2019 holiday season, and more to follow.

Overnight, European markets rose again, up about +0.4%. Wall Street is also higher today driven by bank and tech stocks, but the rise is less, about +0.3%. Yesterday Tokyo markets were up +0.7% and the ASX200 was up +0.5% with the NZX50 unchanged.

The UST 10yr yield is back lower today, down -2 bps after yesterday's rise and now under 1.62%. 

Gold is little-changed, now at US$1,570/oz and that is up just +US$1 in a day.

US oil prices are little-changed today, now just under US$53.50/bbl and the Brent benchmark is at just over US$59.50/bbl. But pricing hasn't yet reflected a big jump in US crude stocks.

The Kiwi dollar is fractionally lower at 65.2 USc. On the cross rates we have held at 96.7 AUc. Against the euro we also unchanged at 59.3 euro cents. That leaves our TWI-5 at just under 70.8.

Bitcoin is still rising, now at US$9,332 and that is a further daily rise of +4%. It's also back above NZ$14,000 for the first time in 2020.

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

Get more news affecting the economy in New Zealand from interest.co.nz and subscribe to receive this podcast in your favourite podcast app - we're on Apple Podcasts, Google Podcasts, Spotify or subscribe on our website.

Tell your friends and leave us a review - we welcome feedback.