The virus spread may be peaking but the fear isn't

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Kia ora,

Welcome to Monday'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 economic implications of the fear of China's virus continue to grow, even if the virus spread itself is peaking.

In China, the COVID-19 numbers are still rising, up to 69,300 and a +2000 rise from Saturday. The death toll is up to 1670 from 1525 this time Saturday. This time a week ago, the Chinese were reporting 40,500 and 910 deaths so the doubling has stopped. The lockdown of Hubei province is getting even stricter. The toll on front-line workers dealing with the emergency is frightening.

And China doesn't only have the coronavirus to worry about. Air pollution, especially in Beijing, is really bad again and that is despite much reduced economic activity due to the virus cutbacks.

And more research is suggesting that the impact on China and many other Asian economies is going to be tougher than earlier assumed. Further, a raft or new disputes is sure to flood international courts and arbitration as increasing numbers of Chinese companies claim force majeure on existing supply contracts.

China also released its Q4-2019 current account data which showed a surplus of +NZ$14 bln in the period and +NZ$61 bln for the whole year. That is a surplus of only +0.2% of GDP, tiny in world scale. For goods alone, the surplus was NZ$160 bln in 2019 and still only +0.7% of GDP. They ran large countervailing deficits in services.

In Europe, they reported a good trade surplus in 2019 of NZ$380 bln or 6% of EU GDP. That is a completely different scale to China's. And they released their Q4 GDP outcome and it revealed only tiny growth.

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In Hong Kong, they are facing their "largest deficit ever" as the government there continues spending following the widespread protest movement' disruptions and now the flu epidemic. In Singapore they too are planning on a major increase in deficit spending, boosted by election-year sweeteners.

In the US retail sales rose only marginally in January, up +0.3% from the prior month, but on a year-on-year basis they are up +4.4% from January 2019.

American industrial production fell however, down -0.8% in January from a year ago. Clearly, the rise in retail sales isn't based on locally manufactured goods. The drop is the first time a January has shrunk since 2016 and continues a string of seven monthly year-on-year declines. This time the reasons given were "unseasonably warm weather" which held down the output of utilities and Boeing's cutbacks.

But consumers aren't worried, with one measure of sentiment rising a little in February.

In Canada, existing home sales rose +12% in January from the same month in 2019 with prices up +11% on the same basis. The property market is especially 'hot' in Toronto. Local mortgage rates there are falling.

In Australia, their largest home loan lender has trimmed fixed mortgage interest rates, promoting an eye-catching 2.99% one, two and three year rate, down from 3.29% and largest cuts to this level for investors. But as regular readers will know, these are 'package rates' that involve a range of fees and other cost obligations, so their "comparative rate" is a better way to match them with New Zealand rates. On that basis, the new CBA comparative rate is between 4.37% and 4.59%. Aussies still pay far more for fixed rate loans than we do.

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The UST 10yr yield is now just on 1.59% and lower by -2 bps from where we left it Saturday - and little-changed over the past week.

Gold rose on Saturday (NZT) to US$1,584/oz. However, for all the uncertainty, gold is only had a +1% gain last week.

US oil prices are firm at just over US$52/bbl. The Brent benchmark is also up slightly to just on US$57/bbl. But in an interesting sign, the price of gas in China has hit a record low as demand collapses. Other energy prices won't be far behind.

The Kiwi dollar will start today softer at just under 64.4 USc. On the cross rates we have held 95.8 AUc. Against the euro we also unchanged at 59.4 euro cents. That means our TWI-5 is now at 70.2 and +0.6% higher than this time last week.

Bitcoin has fallen hard over the weekend, now at US$9,434 which is a -8.3% dive and taking the weekly change negative for the week by -4%.

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

Get more news affecting the economy in New Zealand from interest.co.nz and subscribe to receive this podcast in your favourite podcast app - we're on Apple Podcasts, Google Podcasts, Spotify or subscribe on our website.

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206 episodes