The mood swings down today

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 the investor mood yo-yo is still in full evidence.

First up, American mortgage rates tumbled to an all-time low, with their 30 year fixed rate now at 3.29% (plus points).

And American factory orders fell -½% in January and that now makes it a fall in five of the past six months. Year-on-year, January orders showed zero growth.

Job cuts haven't yet become widespread in the US despite the economic wavering, but they have in one industry - tech. More than 10,000 tech job cuts were announced in February in the US compared with virtually zero in the same month in 2019. Large companies are pulling back and many more tech start-ups are folding. It’s a development that may be leading many other industries.

In fact, equity markets are falling sharply again as the swift spread of the coronavirus in the United States led one state to declare an emergency, while airline stocks were hammered by crippled travel demand. Airline closures are starting.

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The S&P500 is currently down by -3.4% in mid-afternoon trade, reversing yesterday's gains and continuing the yo-yo trend. Equity investors show all the signs of confusion, unlike their bond counterparts who have consistently been strongly risk-averse. Overnight, European markets fell about -1.5%. Yesterday, Hong Kong (+2.1%) and Tokyo (+1.1%) closed sharply positive, and Shanghai came in with a +2.0% gain. The NZX50 was up +2.0% and the ASX200 up +1.1%. But these gains seem unlikely to be repeated today.

The latest compilation of Covid-19 data is here. There are now 16,472 cases outside China, a rise of +2491 in one day as the numbers keep on jumping in South Korea, Italy and Iran. 12,690 are in those three countries (77%). A week ago that outside-China number was 3337 so it is still quadrupling in a week. Inside China, the growth of reported cases has stopped. But global deaths are now up to 3305 and 3014 are in China (91%).

The WHO says most countries are not doing enough to combat the spread of the virus, and that "the experience of ... China continues to demonstrate that this is not a one-way street." Inside the US, even if the Federal authorities are not really engaged, one state, California, has declared an emergency. This is big news as it is their largest state and accounts for 12% of the nation's population. An initial clinical study suggests some key data on its likely impact if it gets into the general population. It would not be good.

And one 'environmental' trend that may get undone is the use of reusable food containers - safety in foodservice may require the return of one-use disposables.

The January trade surplus in Australia came in much better than expected at +AU$5.2 bln (when +AU$4.8 bln was the expected level). But this was not as good as the record AU$8.1 bln in June 2019. In the year to January, the Aussie trade surplus was AU$68.4 bln (and a hugely impressive +4.6% of GDP) and far above the +1.9% of GDP in the year to January 2019.

But the good times won't last. The Australian Treasury estimates that the global virus emergency will take twice as much out of the Aussie economy as their bush fires did, and sapping it of -AU$34 bln or -0.5%.

The UST 10yr yield is down yet again, now under 0.91%, a new record low and down another -6 bps overnight. 

Gold is risen sharply today, up +US21 to US$1,663/oz.

US oil prices are lower by -US$1 to just under US$46.50/bbl. The Brent benchmark is at just under US$50.50/bbl.

The Kiwi dollar starts today firmer at 63 USc. On the cross rates we are also firmer at 95.5 AUc. Against the euro we little-changed at 56.3 euro cents. That means our TWI-5 is marginally higher at 68.2.

Bitcoin is up, gaining +4.8% since this time yesterday at US$9,101.

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

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