Markets dive as pandemic bites harder

Kia ora,

Welcome to Tuesday'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 combination of bad pandemic policies and a coming winter look worrying for northern hemisphere economies.

First up today, Wall Street is falling rather sharply, and is down -2.7% in mid afternoon trade and getting worse by the hour. Overnight, European markets were also down sharply with Frankfurt down -3.7%, Paris down -1.9% and London down -1.2%. There was no indication these markets would drop from Asian trading yesterday; Shanghai was off -0.8% but Hong Kong was up +0.5% and Tokyo was flat. The ASX200 ended yesterday down a minor -0.2%.

But terrible European pandemic developments are setting back the European economy in a major way, and it threatens to be is just as bad in the US.

However, looking back, the American National Activity Index released by the Chicago Fed shows a small improvement from August, but it just seems to be the final bounceback echo from the huge March and April dive.

The latest Fed regional factory survey to be released is from Texas and that reported expanding conditions. New orders are rising, but employment growth seems to have stalled there.

Although new home sales dipped in September and the August data was revised lower, the 2020 levels are still very high and very much higher than the same level a year ago. This part of their housing market is booming just like the existing home market as the demand for 'more space' rises in the pandemic.

At the end of this week, the first estimate of the US Q3-2020 GDP is due to be released. Analysts see a +32% rise from Q2, making back much of the -31% fall in Q2. (It's an intricacy of arithmetic, but to make back all of the Q2 fall, the Q3 rise would need to be up +46% - so they will still be running very much slower than the year-ago level.)

In Singapore, their September industrial production came in surprisingly positive. After rising a sharp +15% year-on-year in August, they were expected to hold that increase with a modest +2.5% rise in September. But in fact the September gain was a spectacular +24% leap and largely driven by their drug industry ("biomedical manufacturing").

China's full-year crude steel output in 2020 is expected to jump above 1 billion tonnes for the first time ever.

In China iron ore prices are staying high (+40% in 2020) but have stopped increasing. However, steel making coal prices are back rising fast again (+16% in 2020). And prices for corn are racing higher as the local grain harvest is late (+30% in 2020) even if officials claim it will be a full one.

Chinese import demand is causing shipping rates to stay high.

In Hong Kong and Shanghai, the world's largest IPO is about to take place, bigger even than the US$29 bln Saudi Aramco listing. Alibaba's Jack Ma is floating his Ant fintech company and it is expected to value the enterprise at US$35 bln.

More data out of Taiwan is impressing. Their September industrial production rose by more than +10% compared with the year-ago levels, and much faster than the good +4% growth in August. Export orders are driving this. By comparison, their nearly +3% rise in retail sales looks tame.

In Australia, their housing market is surging, with last weekend's auction clearance rates exceeding 80% in Sydney and 73% in Melbourne. Victoria is now set for a pandemic re-opening and that will bring an economic rebound which will no doubt include housing.

The latest global compilation of COVID-19 data is here. The global tally is 43,216,000 and up +386,000 since yesterday. It is first-world countries that seem to be having the most difficulty containing the new wave. Global deaths reported now exceed 1,156,000.

The largest number of reported cases globally are still in the US, which rose +46,000 since yesterday to 8,899,000 as a weekend tally. 

In Australia, they are not getting any resurgence. There have now been 27,527 COVID-19 cases reported, and that is +7 more cases than we reported yesterday with zero in Victoria. 

The UST 10yr yield is down -5 bps today at just on 0.79%. 

The price of gold has had a slight rise, up +US$3 to US$1904/oz. And that is little-changed from the same level it was this time last week.

Oil prices are very much lower today, down -US$1.50/bbp to now at just on US$38.50/bbl in the US, while the international price is now just under US$40.50/bbl.

The Kiwi dollar is still at 66.8 USc and little-changed. Against the Australian dollar we firmed yesterday to 93.9 AUc. Against the euro we at 56.5 euro cents. And that means our TWI-5 is now at 70.

The bitcoin price starts today a little softer at US$12,919 with a -0.8% slip.

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

And get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. We will do this again tomorrow.