Gold jumps as optimism fades

Kia ora,

Welcome to Wednesday'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 the price of gold has leapt overnight as investors are struggling to remain positive.

But first up this morning, there was another dairy auction this morning and another fall in overall prices. But the fall was small in the circumstances, down -2.85% from the prior auction two weeks ago and taking the total reduction due to the China virus to -7.6% in US dollar terms. Our currency is also lower so today drop in New Zealand dollars is only -1.6% and the drop for the last two auctions is -4.3%. Given that we are now well into the back end of the dairy season, and some parts of the country are getting too dry, this fall in prices won't hurt the milk payout prospects too much.

World equity markets aren't so forgiving however. Wall Street is back from a long weekend and has shed -0.6% from Friday's close so far in a risk-off mood. They followed European markets who were down a similar amount. Yesterday, Shanghai was down sharply in early trade but closed flat. Hong Kong however dropped -1.5% and Tokyo dropped -1.4% in a day. Locally, the ASX200 fell a much more modest -0.2% and the NZX50 Capital Index actually rose +0.5%.

It isn't all gloom however. The New York Fed's Empire State business survey found a sharp rise in new orders in its district. That was enough to hold firms reporting their expectations at their "somewhat subdued" level.

North of the border however, Canadian factories aren't so positive with their December manufacturing sales down more than they were expecting, and holding the overall 2019 growth to just +0.5%.

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In London it is more gloom with giant global bank HSBC signaled it is returning to its roots, shifting out of western markets and concentrating more on China. That will involve shedding 35,000 jobs although most of them will by sale of units rather than shutdowns. It is a clear signal that despite the current coronavirus issues, it sees a better long term future in Asia than Europe or the Americas. The change comes after yet another year of missed targets after previous reorganisations. The bank is now losing shareholder support and may be unmanageable.

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In China, Covid-19 infections rose to 73,500 and deaths to 1875 and a higher rise than for the day before. Exports from China seem to have ground to a halt. Fewer than a third of China's migrant workers have returned to work. And its a very tough situation for airlines flying China routes.

The UST 10yr yield is falling today and is now under 1.56%, a -3 bps drop. 

Gold is down up +US$22 to US$1,603/oz in very sharp risk-off move in New York today. This is the first time the yellow metal has been above US$1,600/oz since 2013.

US oil prices are now at just under US$52/bbl after a small fall overnight. The Brent benchmark is also lower just over US$57/bbl.

The Kiwi dollar will start today lower by -½c at just over 63.9 USc. On the cross rates we are lower too at 95.5 AUc. Against the euro we are down at 59.1 euro cents. That means our TWI-5 is now down to 69.8 and a cumulative devaluation in 2020 of -3.2%.

Bitcoin has risen and now at US$9,939 and a gain of +2.3% since this time yesterday.

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

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