Markets ignore warnings of difficult pandemic outlook

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 markets have turned positive today, even as officials warn of a difficult period ahead for the pandemic.

There were two services sector temperature checks out overnight. Both show a good expansion, now getting the post-pandemic bounce the factory sector got earlier. The widely-watched local one expanded at a good level driven by new orders. However their employment component was tame but at least it wasn't negative. The internationally-benchmarked version expanded at a similar pace and recorded better employment growth but lesser new order growth.

There is no news on progress on more fiscal stimulus; it is still tied up in Congressional disagreement and Administration confusion.

In Canada, consumer confidence recorded its smallest monthly gain since the start of the pandemic, another sign the swift economic recovery of summer is petering out there.

In Japan, their services sector is still declining even if it is at a slower rate than since the pandemic started.

Meanwhile in South Korea, their factory sector has stabilised as new orders are no longer a drag - even if they aren't expanding just yet.

In Taiwan, their factory sector did expand faster in September at a rising pace and is back to levels last seen in 2018 - and those were very good levels too. This latest improvement is on the back of a sharp rise in new orders.

Today is the final day of China's Golden Week holiday and hundreds of millions will be heading back to work tomorrow. They have been subdued while on this break, spending a full -30% less than in the same period a year ago, even though this 'week' included an extra day.

Even though it improved in September, the Australian NAB business sentiment survey confirmed it is still very weak. It was undermined by the Victorian situation, but overall new orders are still very weak. Capacity utilisation will only recover very gradually until orders pick up.

And staying in Australia, they get another RBA rate review today and they are getting ready for a new Budget announcement from Canberra (late evening NZT). Expectations are high for a tax cut, and one that will backdated to July 1. But top-end tax rates will still be 45% for earnings over AU$200,000 although those on incomes above $AU90,000 will get significant relief but to rates that are still much higher than in New Zealand. 

In New York, the S&P500 is up +1.2% in early afternoon trade. They follow European markets which were up about +1.0% overnight. Yesterday Tokyo ended up +1.2%. Shanghai is still closed but Hong Kong returned and was up +1.3%. The ASX200 ended up a strong +2.6% on the expected Budget stimulus, while the NZX50 Capital Index ended yesterday up a more modest +0.6%.

Internationally, the IMF has changed its tune, no longer warning about the dangers of excessive public debt, rather now saying this is the time for much higher government spending (and ignore the debt consequences).

The latest global compilation of COVID-19 data is here. The global tally is 35,274,000 and up +287,000 in one day. Global deaths reported now exceed 1,038,000 but clearly many are going unreported. In fact, Russia issued a mea culpa overnight saying more than twice as many people have died there as has been officially reported so far.

The head of emergencies at the WHO said overnight its “best estimates” indicate that roughly 1 in 10 people worldwide may have been infected by the coronavirus - more than 20 times the number of confirmed cases - and warned of a difficult period ahead.

The largest number of reported cases globally are still in the US, which is up +35,000 on their Sunday to 7,650,000 and of course that includes the White House cluster. 

In Australia, there have now been 27,149 COVID-19 cases reported, and that is only +13 more cases than yesterday. Deaths are unchanged to 894 which is a milestone for them.

The UST 10yr yield is a lot firmer today, up +5 bps at 0.75% in what is a big move for this benchmark.

The price of gold is up +US$16 this morning at US$1915/oz. Silver has jumped +2.5% in enthusiastic trade.

Oil prices start today firmer, but still very weak, now just over US$39.50/bbl in the US, while the international price is up to just over US$40.50/bbl. These are levels +US$1.50 higher than this time yesterday.

The Kiwi dollar starts today unchanged at 66.4 USc. Against the Australian dollar we are lower at 92.4 AUc. Against the euro we also lower at 56.3 euro cents. And that means our TWI-5 is at 69.6.

The bitcoin price is firmer today, now at US$10,746 and +1.3% higher than this time yesterday.

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.