Westpac not so dark on lockdown’s economic downside, plus manufacturing outlook and house prices up

Westpac forecasts limited economic impact from latest lockdown

A short period of lockdown at alert Levels 2 and 3 “would have little lasting economic impact” according to Westpac economists.

In a hurriedly produced forecast released on Friday, Westpac said the incremental damage is likely to be smaller than the original outbreak of Covid-19, mainly because there will be no new damage done to international tourism. However, if the virus were to get out of control, the bank said “that would be a real game changer for the New Zealand economy, based on what we are seeing overseas.”

Westpac estimates that for each week that Auckland is at Level 3 and the rest of New Zealand at Level 2, about $300m of economic activity is foregone. This equates to 0.5% of quarterly GDP. But it also points out that during a short lockdown, a higher proportion of lost activity would be recouped shortly afterwards, so the actual lasting economic damage would be significantly smaller than the $300m estimate.

“We have learned previously that the economy can bounce back surprisingly rapidly from a successful lockdown. Accordingly, we would not make any change to our GDP or unemployment forecasts in this scenario of a Covid outbreak” it said.

While the Government still had $14 billion in its designated Covid recovery relief fund available to respond to further economic shocks caused by the pandemic, “in a second lockdown, they wouldn’t be constrained to spending only that amount” Westpac said.

“We’ve assumed around $17 billion of additional spending, focused on short term income support to deal with the stresses of a second lockdown” with much of that expected taken up by an extended wage subsidy.

Manufacturing index bounces higher but outlook remains cautious

The manufacturing sector will be encouraged by the latest BNZ-BusinessNZ Performance of Manufacturing Index which hit 58.8 in July, up from June’s 56.2, and the highest reading since April 2018.

BNZ senior economist Doug Steel said given extreme weakness in April and May, the July result is more likely to be a recovery from the large hit the sector experienced earlier in the year, rather than outright strength.

Catherine Beard, BusinessNZ’s executive director for manufacturing, described the result as more of a “catch-up” for many businesses trying to get back to a new sense of normality.

The improvement pre-dates the latest Covid-19 outbreak in Auckland and associated lockdown restrictions which are likely to impact the August result.

Auckland real estate sales volumes spike in July; Nelson sales at 27 year high

Auckland house buyers shook off any Covid pessimism last month which saw total property sales spiking 30 percent in July from a year earlier, and the rest of the country following suit with almost a quarter more houses changing hands.

The latest REINZ figures show a 24.6 percent increase in the volume of sales with 7,854 properties sold last month, the biggest July volume in five years. However, total agency sales activity remained down by 22 percent, or 5,826 property transactions, to 20,220 for the April-to-July period year-on-year. The latest lockdown restrictions announced last week are expected to further impact on August sales.

REINZ chief executive Bindi Norwell said the market remained strong in July, with Gisborne the only region not to post an increase in sales volumes. By contrast the South Island’s West Coast and Tasman bounced to their highest monthly totals in 14 and 18 years respectively. Nelson – which saw a 42 percent increase in house sales concluded – was at its highest mid-winter level in 27 years.

That helped push the house price index up by 9.4 percent year-on-year. The national median house price rose to $660,000 in July, up 14.8 percent from a year earlier

NZ market set to react to latest lockdown announcement

The Government’s announcement of an extended lockdown period came after the market had closed on Friday, so investors will be keenly watching for reaction when the NZ sharemarket opens this morning. Given the high expectation that the lockdown was likely to be extended beyond midnight last Friday, there may be some relief the Government decided not to move to a more restrictive Level 4 lockdown.

Ten listed companies will report either full year or interim results this week including Mercury Energy, Summerset Group Holdings and Fletcher Building, which pre-announced a $196 million net loss last week. Shareholders will be keenly anticipating further information about the company’s result, with its outlook for the next 12 months.

The F&P Healthcare AGM this Friday will also be closely watched, particularly the company’s outlook, given the 117 percent lift in its share price since August last year.

The NZX50 will start the week at 11,452 after declining 1.95 percent last week, while in Australia, the ASX200 gained 2.1 percent to close at 6126. In the US the S&P500 last week came within a few points of re-claiming its pre-covid February high. It ended the week at 3373 up 0.64 percent. The sharp decline in the gold price was the big talking point of last week. Gold ended the week down 4.3 percent at US$1940/oz having traded as low as US$1862 earlier in the week. The NZ dollar also lost ground last week falling almost 1 percent to 65.42 US cents.

Vaccine race hots up

The race for a successful coronavirus vaccine is heating up in labs around the world — and on Wall Street. Germany’s CureVac, a biotech firm that has the backing of the Bill & Melinda Gates Foundation, more than tripled in its first day of trading on Friday.

CureVac priced its initial public offering at US$16 a share. The stock soared nearly 250 percent, to just below US$56, by the end of the day. The company, which is competing with the likes of Moderna , Novavax, BioNTech and Pfizer, is also backed by billionaire Dietmar Hopp, the co-founder of German software giant SAP. Hopp owns nearly half of CureVac. The German government and Big Pharma leader GlaxoSmithKline also have big stakes.

The Bill & Melinda Gates Foundation, the charitable arm of the multibillionaire Microsoft co-founder and his wife, invested $40 million in the company in 2015. CureVac recently received approval from the governments of Germany and Belgium to start clinical trials for one of its vaccines for Covid-19.

Bottom of Form

Uber and Lyft set to fight new US court ruling

Ride-hailing services Uber and Lyft have threatened to temporarily shut down their operations in California after a judge last week declined to carve out an exemption for them from AB5, the new state law that would require the companies to reclassify drivers as employees.

The court injunction gave Uber and Lyft ten days from August 10 to change the independent-contractor status of their drivers and provide them benefits such as health insurance and minimum wage. The companies, which are appealing the ruling, have already lost a bid to extend the 10-day stay on the injunction, firming up the deadline to reclassify the drivers—or suspend operations in the state—by August 20.

California is home to both brands, and a big market for each, including the Silicon Valley tech region near San Francisco. Leaving would be a risk not only for Uber and Lyft, but for tens of thousands of drivers depending on the companies for income, and for the customers depending on them for transport.

Uber has a long history of fighting legal challenges. In 2015, when New York City first considered putting a cap on the number of ride-hailing vehicles, Uber launched an aggressive campaign in response, positioning traditional taxi drivers as having a history of discriminating against people of colour. In 2016, Uber left the city of Austin, Texas, after the city council began requiring enhanced background checks for drivers. Uber returned the following year after the Texas governor signed a law overriding the city’s rules.

EasyJet raises more cash to bolster is balance sheet

Low-cost UK airline EasyJet has further bolstered its finances by securing £608m from selling off and leasing back part of its fleet, as airlines scramble for more cash to see them through increasing uncertainty. The airline has now raised more than £2.4bn since the start of the coronavirus pandemic, including £600m from the UK government’s Covid Corporate Financing Facility and just over £400m from a share placement.

It said it would look at future funding opportunities “on a regular basis”. Airlines across the world are shoring up their finances to help deal with the crisis caused by Covid-19 and restrictions on travel. Global air travel is forecast to fall by as much as 70 percent this year, according to a report from S&P Global, worse than had previously been predicted.

The crisis facing the industry in the UK deepened last week when the British government added more destinations to its quarantine list, including France. Airlines UK said the decision was “another devastating blow to the travel industry”. EasyJet fell to a pre-tax loss of £325m in the third quarter despite aggressive cost cutting measures, after generating just £7m in revenue over the three months.

Andrew Patterson is Newsroom's Markets Editor and has worked for decades as a financial journalist, radio presenter and editor with Australia's ABC, Radio Live and NBR.

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