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 policy choices Australia are making are likely to drive a long-term wedge between us.
But first up today, we should note the overnight dairy auction. The most important point to note is that it wasn't negative. Prices rose +1.2% in US dollar terns and were up almost the same in NZ dollar terms. Leading the way was butter with a healthy +4.5% rise and a nine month high. WMP also rose, up +2.1%. Other categories didn't fare so well but these two were enough to bring a rise in overall prices. Perhaps the impact was blunted by low volumes on offer, just on 20,000 tonnes, but that is almost 20% more than we had in April a year ago.
The ILO says that the pandemic is having a catastrophic impact on working hours and earnings, globally. More than 200 mln people have been thrown out of work already and 80% of workers have been affected in some significant way - that more than 2.7 bln people.
In Canada, more than 3 mln people are on job support benefits as their labour market gets crushed. That is 16% of their labour force.
China's foreign currency reserves fell more than expected in March but are still above US$3 tln. They actually used up -US$46 bln in the month when the expectation was that they would fall only half of that. It takes them back to levels last seen in November 2016. (And they didn't add to their modest gold holdings either. Gold makes up only 3% of their official reserves.)
International credit ratings agency Fitch has downgraded all the main Australian banks, taking their AA- ratings to A+. It has done the same with their New Zealand subsidiaries. Fitch says unemployment will spike sharply and remain very elevated relative to pre-pandemic levels even after the recovery is underway. There is no notice yet from the other big two credit rating agencies, Moody's and S&P, but a similar move would not be a surprise now.
But this downgrade action is minor compared to the record wave of downgrade cuts to junk bond issues.
In climate news, the US Government has reported that global levels of methane keep on tracking up to new record levels. And essentially, they don't know why.
There are now 1160 Covid-19 cases identified in New Zealand, with another +54 new cases yesterday and lower than the +67 increase the prior day. That is the lowest daily increase in 13 days. The number of clusters has risen to 10. Only one person has died here. There are only 12 people in hospital with the disease now, but four are now in ICU. 21% of all cases have recovered (25% of all confirmed cases).
Worldwide, the latest compilation of Covid-19 data is here. The global tally is now 1,390,500 and up +81,000 this time yesterday. More than 27% of all cases globally are in the US and they are up +33,000 since yesterday to 380,000. It is a faster rate of increase. China's recovery rate is now 94% and they claim they only have 5300 active cases nationwide now. Wuhan is fully reopen now. Australia has now over 5900 cases, 4800 active, and while the rise in infection is slowing, deaths are not and now exceed 45. It appears Australia is planning to live with the disease rather than eradicate it. And if New Zealand does achieve eradication, that is likely to be a major impediment to normal relations between the two countries for a very long time.
Global deaths now exceed 79,000. Death rates in Europe are frightening and keep on rising; the death rate in the UK has leaped to over 11% of all those infected, now nearly the highest of any country apart from Italy. But they are much lower elsewhere in Europe; in Germany it is only 1.8%. The US rate is up to just on 3.1% and now exceeds 12,000 people. China is holding at 4.0% with 3,300 deaths. Death rates in the rest of Asia are modest by comparison at about 1.4% in their developed countries.
In Australia, and following New Zealand's lead, a banking regulator has written to all banks telling them to cut their dividends.
Yesterday, the RBA held its policy positions at its regular rate review. But it did say it was expecting "large increases in unemployment" soon. The fear of that is spurring their Federal Government to talk about restarting their economy and moving out of lockdown. And SME businesses hurt by the coronavirus economic downturn will be exempted from paying part of their rent, and given at least two years to catch up. That is likely to cause pain for most property investors.
Globally, most equity markets are extending yesterday's rally, but with noticeably less enthusiasm today. The S&P500 is up +1% so far today although larger gains were recorded in Europe overnight
The UST 10yr yield has jumped again to just on 0.74% and a +6 bps rise in a day.
Gold is down slightly today, dipping by -US$6, to US$1,652/oz.
US oil prices are sharply lower again today at just over US$24/bbl, another -US$1.50 fall. The Brent benchmark is also lower at just over US$32/bbl.
The Kiwi dollar is still rising as the greenback fades, up another +½c to 59.9 USc. On the cross rates we are much softer at 96.7 AUc as the Aussie has risen even more. Against the euro we are holding at 55 euro cents. That means the TWI-5 is at 66.5 and back to the same levels were had two weeks ago.
Bitcoin is now at US$7,357 and up +2% in a day.
You can find links to the articles mentioned today in our show notes.
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