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The Melt down in Financial Markets continued into Monday following last week’s massive sell off in just about every financial instrument since the 2008 Global Financial Crisis. 

The RBNZ cut rates at 8am Monday morning from 1.00% to 0.25% in an unscheduled announcement. Last week Orr said he would not need to make a one off policy meeting announcement but with the Covid-19 impacting just about everyone, the central bank decided to cut sooner rather than the scheduled 25th March outing. Prime Minister Ardern announced travel restrictions over the weekend that require all people travelling into the country to self-isolate for 14 days. The New Zealand tourism industry is expected to grind to a halt with NZ expected to dip into recession for as long as the virus remains uncontrolled. If a May QE program was necessary from May this would undoubtedly put downward pressure on the NZD. NZ second quarter GDP is expected to come in much lighter as the economic fallout takes a toll. An economic “business fiscal package” is to be announced today at 2pm by Jacinda Ardern and is said to be significant.  

Spain and France have announced emergency restrictions like Italy banning people from public gatherings. The epicentre is now Europe with this region being in the centre of the coronavirus epidemic.  Read more

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Below are the weekly economic releases for this week (NZT)

Monday 16/03

• 8am, NZD, Official Cash Rate
  • Previous 1.00%
  • Actual 0.25%
• 8am, NZD, RBNZ Rate Statement
• 10am, USD, FOMC Statement
• 10am, USD, Federal Funds Rate
  • Previous <1.25%
  • Actual <0.25%
• 1017am, USD, President Trump Speaks
• 11am, NZD, RBNZ Press Conference
• 1130am, USD, FOMC Press Conference
• 3pm, CNY, Industrial Production y/y
  • Forecast -3.00%
  • Previous 6.90%
• Tentative, JPY, BOJ Policy Rate
  • Previous -0.10%
• Tentative, JPY, Monetary Policy Statement
• All Day, All, G7 Meetings

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Is it financial armageddon?

Coronavirus is officially out of control with the World Health Organisation declaring it a Pandemic overnight Wednesday. Numbers continue to balloon out with 125,000 people affected now and 4,600 deaths worldwide.

Whatever they are doing in Italy is clearly not working with the govt ordering all shops to close except groceries and pharmacies.  Prime Minister Conte said if cases continue to rise this doesn’t mean tighter restrictions. Rome residents are still out and about socialising (coming from someone in Rome) which may explain things.  People have initially ignored the warning alarms and ignorantly gone about their normal daily lives. US President Trump has made face masks available to healthcare workers – wow, this is a sign the US has now started to treat the virus seriously. Trump also announced a travel ban from all incoming flights from Europe for 30 days beginning today. 

Adrian Orr said he has not, and still does not need to use alternative monetary policy instruments to alleviate any such potential strain to the New Zealand economy.  The concern at the moment is how much GDP will be affected over the coming months with the significant slowdown in global demand taking form. Words like uncertainty, fear, slowdown and risks are being bandied around not just locally but globally. Central banks over the coming months could end up close to, or at zero interest rates as recession woes weigh heavy. There is still a chance the RBNZ could announce an emergency meeting and ease monetary policy from the current 1.0%. Read more

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Australia

Australia’s Central Bank cut rates by 25 basis points to 0.50% as widely expected last week. With references made to Bushfires, phase one trade deal and the impact of coronavirus to the economy high on the agenda. The RBA are prepared to cut rates further if necessary as the economy responds to the global coronavirus outbreak. The government saying the coronavirus has “clouded the near-term outlook.” Other Australian data released over the week was poor with Building Approvals and Current Account both coming in below expectations. The Aussie Dollar though has been held up by general weakness in the US Dollar although yesterday’s “flash crash” has changed the game somewhat with the currency reaching 0.6315 momentarily (a massive sell off) before recovering around 0.6600.

New Zealand

Local attention has focused on Coronavirus over recent weeks especially with a lack of data publishing. New Zealand reported its 5th case of the virus with travel bans becoming more common. Consumer and business confidence is taking a hit, this week’s ANZ business confidence survey should confirm this.  This disruption to the local economy is expected to be only short term with no long period forecast for worsening GDP. March quarter is expected to show negative growth with the forecast for 2020 expected to be around 1.9% from a pre coronavirus 2.7%. The housing market should also grind to a halt through to mid this year as a result of job losses resulting in a slump in household incomes. The recovery according to the NZ govt should resume in the second half of this year. Later in March the RBNZ will drop the cash rate to 0.75% and possibly again in May. Word is Ore speaks today and could hint at dropping the cash rate before then. Read more

Below are the weekly economic releases for this week (NZT)

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Tuesday 10/03

• 2pm, NZD, RBNZ Gov Orr Speaks

Thursday 12/03

• 1230am, GBP, Annual Budget Release
• 130am, USD, CPI m/m
  • Forecast 0.00%
  • Previous 0.10%
• 130am, USD, Core CPI m/m
  • Forecast 0.20%
  • Previous 0.20%

Friday 13/03

• 1.45am, EUR, Main Refinancing Rate
  • Forecast 0.00%
  • Previous 0.00%
• 145am, EUR, Monetary Policy Statement
• 230am, EUR, ECB Press Conference

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Direct FX can do FX Options

With extreme levels in many currency pairs it’s a good time to price up an option. Please let us know if this is of interest and we are happy to speak to anyone who is interested.

Markets felt better heading into the second half of the week as market punters welcomed increased signs of countries coordinated efforts in the fight against Covid-19 and Super Tuesday achievements by Vice President Joe Biden. Sentiment improved as Biden won a majority of state primaries in the race to become the Democratic Presidential nominee. A more centrist Democrat candidate has provided comfort to investors with equity markets climbing over 4% reversing most of the early week losses.  Read more

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Over the past week, economic data from most countries has taken a back seat to concerns around the expanding Coronavirus epidemic. The rapid drop off in economic activity in China, and its effect on supply chains around the world, spooked global stock markets with US equities leading the sell off. All three US benchmark indexes declined around 11% or 12% percent from their recent peaks. This has led to many forecasters now calling for interest rate cuts from most major central banks. There is even speculation that we could see coordinated central bank action in the coming weeks, much like we saw during the 2008 financial crisis. First out of the blocks however is going to the Reserve Bank of Australia, as their regular interest rate decision is scheduled for this afternoon. A cut from the RBA is widely expected with interest rate markets now fully pricing it in. Read more

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Below are the weekly economic releases for this week (NZT)

Tuesday 03/03

• 130pm, AUD, Building Approvals m/m
  • Forecast 1.1%
  • Previous -0.2%
• 430pm, AUD, Cash Rate
  • Forecast 0.75%
  • Previous 0.75%
• 430pm, AUD, RBA Rate Statement

Wednesday 04/03

• 130pm, AUD, GDP q/q
  • Forecast 0.4%
  • Previous 0.4%

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Coronavirus fears across the globe have fuelled concerns in markets with global stocks and Crude Oil slipping over 10% this week. Uncertainty with climbing infected cases and further deaths have asked questions around the size of the spread as authorities prepare for a possible pandemic. Sell the rumour buy the fact is how markets are reacting to headlines with uncertainty over actual facts. The problem being the facts are sketchy at best with countries like Thailand, Indonesia and India releasing unreliable numbers. Both Thailand and Indonesia are big tourist countries.

President Trump held a press conference on coronavirus yesterday saying the media was doing everything it could to make coronavirus look worse than it is, accusing them of panicking markets. The Whitehouse has sought US 2.5B to fight the virus, with the country still confirming that it has no actual deaths. However, Trump confirmed that a new case of unknown origin has been confirmed in California, a person who has not returned from a foreign country has contracted the virus.

US New Home Sales for January published north of expectations at 764,000, this is a 7.9% rise to the December rate of 708,000 and 18.6% above the January 2019 statistics of 644,000 showing a solid improvement to the US economy. Powel made a comment recently the economy stands on a decent footing with consumer confidence high and construction investment on the rise. The US Dollar has been well supported this week even though US equity markets have fallen over 10% over the week. The DOW down the largest two day points decline on record and again down an additional 4% at Thursday, NY session close.  

ANZ Business Confidence fell 6 points to 19% of surveyed reporting they thought business conditions would worsen over 2020. ANZ reported that the coronavirus in China “was causing widespread alarm” for the outlook of the New Zealand economy. The true numbers won’t really be known for some weeks yet.  

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