Daily Brief

Hopes and fears

Kiwi unlocked

The Covid-19 tragedy has ushered in a whole new world of weird, not just in everyday life but in the behaviour of financial markets. The last few days were a case in point. Share prices continued higher even as oil prices sank to a 21-year low. On one hand investors are optimistic; on the other they are not.

One of the latest unicorns for investors to chase is the end of lockdown: everybody is talking about it but few are implementing it yet. Another is the development of treatments, vaccines and tests, all of which show promise but none of which are capable of implementation on a global scale. The lockdown story gained currency this morning when Prime Minister Jacinda Ardern said it would end in New Zealand in a week’s time. The NZ dollar became the top performer, strengthening by 0.7% against the majors and taking more than a cent and a half off the pound.

Germany’s Angela Merkel will allow smaller shops to reopen, starting today. In Britain however, the government says there is no end in sight. Minister Michael Gove dismissed the idea that schools could reopen in three weeks’ time. The euro and the pound are unchanged from Friday against one another.


 Quite bad

The output data from China were mostly negative but not every one of them was as bad as feared. Gross domestic product shrank by 9.8% in the first quarter of 2020 and industrial production was 1.1% lower on the year. Meanwhile, Japanese production was down by 5.7% in the year to February.

In Europe and North America ecostats were few and far between on Friday. Inflation in the euro zone slowed from 1.2% to 0.7% in March, as expected. Euroland construction output fell 1.5% in February.

The only US statistic was the Baker Hughes oil rig count. It showed 438 working rigs, less than half the number operating 15 months ago. Over those same 15 months oil prices have fallen more than 70%. WTI crude at $15 is at a 21-year low because of lack of demand. The situation is exacerbated by a shortage of storage facilities, which could conceivably lead to negative prices as producers pay buyers to take it off their hands.


Staying home

The government’s mantra has taken on a different context with the residential property market. Rightmove’s index of asking prices for UK real estate fell 0.2% in April but the firm said “the coronavirus lockdown has made it impossible to produce meaningful statistics”

New Zealand announced overnight that consumer prices rose 2.5% in the year to end-March, up from the 1.9% inflation rate for calendar 2020. The People’s Bank of China cut its one-year loan prime rate (LPR) by 20 basis points to 3.85%. The move was expected and more are likely.

Data later today cover the Euroland balance of trade, the Chicago Fed’s national activity index and Canadian wholesale sales. Tonight brings Business NZ’s performance of services index (PMI) and tomorrow opens with the UK employment data.

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