Economic snapshot: markets on edge over jump in Covid cases

Monday, 22 June 2020

Treasury secretary Caralee McLiesh briefs Parliament's Finance and Expenditure select committee on the economic outlook earlier in June.

Fresh nervousness is expected on financial markets this week amid the re-emergence of coronavirus cases in New Zealand and strong growth in case numbers overseas.

ASB noted in a weekly bulletin on Monday that the number of new daily diagnoses in the United Sates had risen above 30,000 cases for the first time since May 1.

Westpac also indicated the growth in Covid cases overseas could set the tone for financial markets, saying the rise in Covid cases in the US was a 'key concern'.

Covid tracker Worldometer reported the two highest daily tallies of new global infections on Saturday and Sunday, with a record 180,874 cases on Saturday.

New daily deaths have been edging up, but at a slower pace, and are hovering at around 4000 to 5000.

The S&P Futures Index closed down 1.3 per cent at 3058 on Saturday, New Zealand time, setting the scene for a possible drop in US share markets overnight on Monday.

* Economic fog lifts a little, but this is not the time to hit the accelerator

There was a soft start to trading on the NZX on Monday.

* Reserve Bank doubles down on promise to keep OCR at 0.25pc until March

That appeared reflected in trading on the NZX on Monday, with the NZX50 closing down 97 points, or 0.9 per cent.

Mounting evidence that the quarantining and managed self-isolation of travellers coming into New Zealand had been poorly managed appeared to keep the NZX and the New Zealand dollar in check late last week.

The border botches complicated a picture painted by Treasury secretary Caralee McLiesh on Thursday of a stronger-than-expected bounce in domestic economic activity flowing into a potentially slower recovery because of overseas events.

Infometrics economist Brad Olsen said on Friday that recent missteps had caused a collapse in confidence in the Government's ability to protect the country’s Covid-19-free status.

The Reserve Bank will release its next statement on the OCR on Wednesday, but has already committed to not changing the rate.

The Reserve Bank will make its next scheduled announcement on the Official Cash Rate on Wednesday afternoon.

But governor Adrian Orr has already given the central bank's word to keep the OCR unchanged at 0.25 per cent until March next year.

That means the focus on Wednesday is likely to be on any comments the bank makes about the state of the economy and the potential for any increase or reduction in its $60 billion programme of quantitative easing (QE).

The National Institute for Economic Research (NZIER) think tank said there was a wide range of views among expects it consulted on whether more monetary policy stimulus was required, and in what form.

'Overall, the consensus … is that more stimulus would be required over the next 12 months, with the majority favouring an expansion of the Reserve Bank’s quantitative easing programme.'

There was little support among experts on its 'shadow board' for an immediate cut to the OCR, though it said some thought that would be required 'over the coming year'.

ANZ said in a research note on Wednesday that it expected the Reserve Bank to expand the cap on its QE programme to $90b in August, but said there was no need for it to act now.

'We expect the Reserve Bank will emphasise that they stand ready to act further if required,' ANZ said.