Awful US jobs data understates the real situation; the US service sector contracts; Fed ponders opacity; Japan and China offer virus aid; iron ore prices fall; UST 10yr yield at 0.60%; oil and gold rise; NZ$1 = 58.5 USc; TWI-5 = 65.5

Here’s our summary of key economic events overnight that affect New Zealand, with news of more very bad job loss data in the world’s largest economy

American employment levels fell sharply in March. The official non-farm payrolls report showed payroll employment fell by -701,000 in March, and the unemployment rate rose to 4.4%. But these are seasonally adjusted results. Their actual employed workforce fell to 155.2 mln in March from 158.0 mln, and that is a fall of -2,850,000 and probably a far better indication of what actually happened. But this only the situation mid-March; the survey behind these numbers predated many coronavirus-related business and school closures that occurred in the second half of the month. The weekly jobless claims report is a more up-to-date indicator of the shock their jobs market is taking – more than 10 mln people filed for these benefits in March after losing their jobs.

Unsurprisingly, the US service sector PMIs look awful. The widely-watched ISM one showed a sharp fall, but not a contraction. (The survey was taken too early in the month to be relevant now.) The internationally-benchmarket Markit one did show a precipitous decline into a severe contraction and probably more accurately reflects the end-of-month situation.

As the crisis deepens in the US, the threat of bank runs rises (despite their deposit insurance program). Now Fed researchers are wondering if holding back information and data that was once transparent would help control such urges. They conclude it will: “a policy of suppressing information about banks’ balance sheets has a significant and positive effect on deposits”. The Americans will find it hard to criticise China when they do the same.

There are now 868 Covid-19 cases identified in New Zealand, with another +71 new cases yesterday and lower than the +89 increase the prior day. The number of clusters has been risen to 10. Only one person has died here. There are still only 13 people in hospital with the disease, one in ICU and stable.

Worldwide, the latest compilation of Covid-19 data is here. The global tally is now 1,066,700 and up +65,000 from the 1,001,000 we had this time yesterday. 24% of all cases globally are in the US and they are up +32,200 in one day to 258,200. Germany now has more cases than China, joining Italy, Spain and the US. Australia has now over 5300 cases, and 28 deaths. Global deaths now exceed 56,000. Death rates in Europe are frightening; 12.2% in Italy, 9.3% in the UK, 9.2% in Spain, 9.0% in France. But they are much lower in Germany at 1.4%. The US rate is 2.6% and China was 4.0%. Death rates in the rest of Asia are modest by comparison at about 1.4% in their developed countries.

Japan announced it would supply a ‘clearly effective’ coronavirus drug free to any country that asks for it. In contrast, the Americans have banned the export of masks and other life-saving production, even to Canada. Meanwhile, China is ramping up “mask diplomacy” in the resulting vacuum.

And China has sharply cut the amount of cash that mid-sized and small banks must hold as reserves, releasing about NZ$100 bln in long-term funding to shore up their economy. They also cut the reserve requirement ratio for those banks by -100 bps, in two phases. But it is holding off cutting retail deposit rate minimums despite bank pressure to do so.

Their private Caixin/Markit services PMI hasn’t shown the same full recovery that their factory one did. The Caixin survey shows a still fierce contraction in March, unlike the official services PMI which claimed an expansion. Likely the Caixin survey is more realistic.

The Aussie services PMI doesn’t make comfortable reading either.

And the huge Australian superannuation funds are in a liquidity crisis and withdrawals now exceed inflows. It’s a sector that is about to be shaken up hard. And the expected fall in iron ore prices is starting to happen now. Prices for steel-making coal have tumbled hard in the past week and iron ore will follow.

Equity markets are lower today. The S&P500 is down more than -2% so far and that will take the weekly change to -2.5% and the change since the peak on February 20 to -26% and a full bear market. Yesterday Asian markets drifted while European markets were down about -1% overnight. Both also bear market trends in the past six weeks.

The UST 10yr yield is lower today so far by -2 bps at just under 0.60% after equaling its all-time low earlier in the day. Their 2-10 curve is less positive today at +37 bps. Their 1-5 curve is also less positive at +20 bps, and their 3m-10yr curve is at +50 bps. The Aussie Govt 10yr yield is now at 0.76% which is down -1 bp in a day. The China Govt 10yr is down -7 bps at 2.61% and for them that is a sharp move lower. The NZ Govt 10 yr yield is also -7 bps lower at 1.03%.

Gold is firmer again today, up by another +US$8, to US$1,618/oz.

The Fear & Greed index we follow is still on the ‘extreme fear’ side, but only just and not at the critical level we had two weeks ago. The VIX volatility index is still very elevated however, now at 50 when the average before this latest crisis was about 17.

US oil prices are sharply higher again today, at just over US$28/bbl, a +US$3.50 rise. The Brent benchmark is also higher at just over US$33.50/bbl. The US is scoring an own-goal by effectively joining the cartel set up to oppose it. The US rig count fell sharply last week to a level last seen in January 2017. So the Americans will have less domestic oil and higher foreign prices to contend with. It’s a losers strategy handing a victory to OPEC and the Russians.

The Kiwi dollar is lower by -½c from this time yesterday at 58.5 USc although it fell lower in-between. We have ended the week with a cumulative loss of almost -2c. On the cross rates we are at 97.6 AUc and a weekly -¼c dip. Against the euro we are at 54.2 euro cents which is unchanged on the week. That means the TWI-5 is at 65.5 and down a full -100 bps for the week.

Bitcoin is now at US$6,731 and down -2.1% since this time yesterday. That represents a flat weekly result, but in NZD this crypto is up +4%. 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 ».

Our exchange rate chart is here.

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