Here's our summary of key economic events overnight that affect New Zealand, with news of sharply lower retail demand worldwide.
First up today, the overnight dairy auction brought little change in overall prices with the index down -0.8% but the key WMP and SMP prices both up +0.1%. It was prices for butter (-5.8%) and cheese (-6.8%) that took the index lower. Volumes offered for sale in this auction were a light 16,442 tonnes, not only reflecting the season, but also the lower New Zealand milk production. They are also similar to the same auction this time last year. In New Zealand dollar terms, prices were down -2.4% on a firm Kiwi dollar.
In the US, the latest update of the Johnson Redbook for weekly retail sales puts them down almost -9.3% on a year-on-year basis and -12.6% on a month-on-month basis. Given that the retail industry in the US was worth US$6.3 tln annually at the latest reading, that fall is equivalent to at least -US$750 bln - and probably falling. A reduction in demand of that size is a world-scale event. These falls come as consumer debt reached record levels.
The retail trade is a big part of their giant services sector, and that result is backed up -and more - but the latest services PMIs for the US. Both the internationally benchmarked Markit one, and the more widely watched local ISM one are recorded record falls, far below what was seen in the GFC. These results end an almost ten years of continuous expansion in this sector.
Their service sector may be contracting, but the full US trade deficit is widening again as exports fall more than imports. US exports to China fell -15% essentially making the US-China trade deal a failure. US imports from China hardly changed.
The situation is dire for US Federal Government finances. It says it needs to raise US$3 tln in the current quarter by selling bonds. It is a level that will likely overwhelm markets and can only be achieved by the US Fed being a major buyer with QE money. And in the third quarter it indicated it will need to borrow another US$677 bln in Q3. (It borrowed $500 bln in Q1.) By any measure, this is panic borrowing. Already US Federal debt exceeds US$23 tln - and they are probably only now just getting started.
Retail sales data is also out for other jurisdictions. In Hong Kong, they have recorded an eye-watering -42% decline on a year-on-year basis and that was only for the March year. And Singapore has recorded a -13% drop on this same basis and also only for March. Both are more evidence that consumer demand is collapsing worldwide.
In Europe, the German Constitutional Court has ruled the Bundesbank to halt participation in the ECB's bond-buying programs unless it can show the policy is ‘proportionate’. But the ECB is unbowed by the decision.
In Australia, the RBA left all its policy positions unchanged in its regular monthly rate review. But it did hint that when the recovery comes, it could be stronger than others assume.
But, almost 1 mln Australian workers have lost their jobs since social-distancing measures to limit the spread of COVID-19 ramped up. Payroll data from the tax office shows the number of jobs slumped by -7.5% between March 14 and April 18 in a workforce of 13 mln. And this is just the start. Even for those who haven't lost employment, household finances are under pressure. These sudden changes are not only going to hurt demand in a major way, they will also change household spending attitudes for a very long time.
The latest compilation of Covid-19 data is here. The global tally is now 3,630,900 and up +155,000 from this time yesterday which is a much faster rising rate.
Now, just under 33% of all cases globally are in the US, which is up +22,000 since this time yesterday to 1,193,000. This is a slower rate of increase. US deaths are now more than 70,000 and they aren't really getting on top of the pandemic. Global deaths now exceed 255,000. We are back looking at the Brazil numbers being reported and there is an unnerving acceleration there. Russia and India are getting a similar profile of fast-rising infections.
In Australia, there are now 6849 cases (+24 since yesterday), 96 deaths (+1) and a stable recovery rate of just under 86%. 66 people are in hospital there (-4) with 27 in ICU (-1). The Aussies have lingering issues at meat processing plants in Victoria.
There are 1486 Covid-19 cases identified in New Zealand, with zero new cases again yesterday. One probably cases was determined not to be coronavirus. Twenty people have died, unchanged, almost all geriatric patients. There are just four people left in hospital with the disease (unchanged), and none are in ICU. Our recovery rate is now up to almost 88% and rising.
Wall Street is higher today, thinking the easing of lockdowns will bolster economic activity and restore profits. The S&P500 is up +1.8% so far. Overnight, EU markets clawed back some recent losses, up about +2%. Shanghai returns to trading today after their long weekend holiday. Yesterday both the Australian and New Zealand equity markets booked gains.
The UST 10yr yield is little-changed in opening trade in New York, at just over 0.65%. Their 2-10 curve is holding at +46 bps. Their 1-5 curve is marginally steeper at +20 bps, and their 3m-10yr curve is at +55 bps. The Aussie Govt 10yr yield is up +2 bps at 0.86%. The China Govt 10yr is unchanged at 2.52% but will be back in business later today after their long weekend public holiday. But the NZ Govt 10 yr yield is marginally firmer, up +1 bp to 0.59% maintaining the huge gap to both the Aussie and US equivalents.
Gold is unchanged today, still at US$1,707/oz.
Oil prices are up sharply today. In the US, they are currently at just on US$24.50/bbl and a rise of +US$4.50. But it will need to rise above US$30 before any domestic fracking resumes. International oil prices are just on US$31/bbl.
The Kiwi dollar is marginally firmer overnight, and is now at 60.6 USc. On the cross rates we are still at about 94 AUc. Against the euro we are up again, today by more than +½c to 55.9 euro cents. That means the TWI-5 is just a little bit firmer at 66.6.
Bitcoin is little-changed again today, up less than +1% at US$8,815 and with very little overnight movement. The bitcoin rate is charted in the exchange rate set below.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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