The scale of the Chinese emergency widens fast

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 our currency is ending the month at its lowest level of the year so far.

But first, the Chinese coronavirus has now spread to India and the Philippines. And Russia has closed its far eastern border with China. Vietnam is doing something similar. Many of the world's major airlines have cancelled flights to and from China. Some countries are putting cruise ships with Chinese passengers into quarantine. And new estimates suggest Chinese economic growth could drop to the +4.5% level in 2020.

The World Health Organisation's committee on pandemics is meeting today for third time in a week and will likely declare a full-scale emergency. That will trigger a more co-ordinated international response, but it will also isolate China.

And a US cabinet secretary is gloating about how China's struggle "will bring back jobs to the US". But some key companies seem to be moving production to other Asian countries instead. And in another oddity, the virus is badly affecting the sales of the Mexican beer, Corona.

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The American Q4 GDP estimate is out and has come in at +2.1% pa, right on market expectations, and exactly the same level as Q2 and Q3-2019. It's a level that is lower than the average for the past three years, held back by the tariff wars and excessive deficits. And it is well below the Administration's own 3% target.

In Europe, rising business sentiment in both France and Germany is offsetting flat consumer sentiment levels as businesses shake off their negative outlook for 2020. But these surveys were taken before the full risks of the coronavirus were known.

Equity markets are all lower today, continuing the risk-aversion slide that set in yesterday. The S&P500 is down -0.7% so far today. That follows European markets that were down a sharp -1.4% or so overnight. Yesterday Tokyo ended up down a sharp -1.7% and Hong Kong fell -2.6%. Shanghai is scheduled to open on Monday, but expect that to be delayed. Whenever it does open, there will be serious red ink everywhere.

Australia's mining industry won't get off lightly either. Not only is Chinese industry severely constrained, but Chinese ports may be closed to shipping soon and that would bring a rapid halt to their operations. Obviously, such a move will heavily impact New Zealand's growing trade with China, and that includes our tourism which will also be heavily affected. No-one is going to get off lightly here.

And in Australia, ANZ is accusing regulator ASIC of collusion and abuse of power in a court battle that will leave it exposed to reprisals when the judgement is released.

The UST 10yr yield is even lower today, down -8 bps after yesterday's fall and now under 1.54%. 

Gold is up strongly today, now at US$1,581/oz and that a rise of +US$11 in a day.

US oil prices are sharply lower today, down by more than -US$1.50 to now just under US$52/bbl and the Brent benchmark is at just over US$58/bbl. Demand fears are weighing heavily here.

The Kiwi dollar has also been knocked sharply lower today by the retreat from commodity currencies. It is now at 64.9 USc, a drop of more than -¼c. On the cross rates we have held at 96.6 AUc because the Aussie is suffering the same fate. Against the euro we also lower at 58.9 euro cents. That leaves our TWI-5 at just under 70.4 and a new low for 2019.

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

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