Coronavirus Takes Turn for the Worse, and British Cabinet Reshuffled Significantly

February 13, 2020

Thursday has been a difficult day in world financial markets, absorbing the news of an exponential increase in suspected coronavirus cases, as well as the unexpected quitting of British Chancellor of the Exchequer Javid and departure of several other members of Prime Minister Johnson’s cabinet.

Share prices tumbled 1.6% in Great Britain, 1.2% in Spain, 0.9% in France, 0.7% in Germany and 0.6% in Italy. Earlier in the Pacific Rim, equities fell by 0.7% in chinal and Indonesia, 0.3% in Hong Kong, and 0.2% in South Korea.

The 10-year British gilt yield rose 3 basis points in contrast to a 4-basis point drop of the 10-year U.S. Treasury yield in futures trading.

The price of WTI oil is down 0.5%. That of Comex gold rose 0.3%.

The dollar fell 0.4% against the yen and 0.6% versus sterling but is 0.1% firmer against the euro.

The coronavirus news has to do with a change in the measurement of cases in the hardest hit province, Hubei. Previously, one had to test positive in a test, but now anyone showing key symptoms is included, and that resulted in the identification of nearly 15k new cases and almost 50,000 overall in just that one area. That puts worldwide cases at about 50k and deaths above 1,300. High-ranking political leaders in China have been replaced in light of this embarrassing development.

Australia’s central bank governor Lowe warned that climate change will diminish Australian growth.

The National Bank of Serbia‘s Executive Board retained the current policy interest rate level of 2.25%. A released statement observes that inflation is likely to remain under control, hovering for now around the lower boundary of its target range but rising eventually toward the middle. Past rate cuts of 25 basis points each in July, August and November are helping to support growth. The rate was earlier cut by 50 basis points each in 2016 and 2017 as well as by 25 bps in March 2018 and another 25 bps in August of that year.

The purge of the British cabinet just two months after the general election is reminiscent of the turnstile pattern of the U.S. Trump administration and increases the risk of an eventual post-Brexit life without any trade deals. Other cabinet departures include the Secretary of the State of Northern Ireland and the Attorney General.

The European Union’s Winter Forecast of the euro area economy projects 1.2% growth both this year and next and CPI inflation of 1.3% in 2020 and 1.4% in 2021.

U.S. CPI inflation as expected rose to a 15-month high of 2.5% in January, but the 0.1% month-on-month increase of consumer prices was a 4-month low. Core CPI inflation printed at 2.3% for a fourth straight time and has fluctuated narrowly between 2.0% and 2.4% since March 2018. U.S. new jobless insurance claims remained ultra-low at 205k last week and averaged 212k over the past four weeks. Finally, U.S. real average hourly earnings in January were just 0.6% above their year-earlier level.

Japanese domestic producer prices went up 0.2% in January, sufficient to lift its 12-month rate of increase to a 14-month high of 1.7%. Export and import prices recorded on-year declines of 1.4% and 0.7%, which were considerably smaller than those in December.

The 1.7% preliminary estimate of German CPI inflation last month has been confirmed by more complete information. It represents a 6-month high, and the acceleration represents higher food and energy costs. Core CPI slid to 1.5% from 1.7% in December.

The Royal Institute of Chartered Surveyors’ monthly British house price diffusion index, a measure of the percent of surveyed properties with price increases, jumped to a 31-month high of 17% in January versus -2% in December and -11% in November.

French unemployment fell 0.4 percentage points to a 10-year low of 8.1% in the final quarter of 2019.

Dutch GDP grew at a 0.4% quarterly rate in each quarter of 2019, but on-year growth rate last quarter of 1.5% was down from 2.2% in the final quarter of 2018. Average growth in 2019 of 1.7% was at a 5-year low. The Dutch trade surplus in 2019 totaled EUR 56.2 billion, just a touch below the EUR 56.6 billion surplus in 2018. Dutch retail sales grew 5.1% on year in December, most in 20 months, and by 3.4% on average for all of 2019.

CPI inflation in Hungary of 4.7% last month was the highest in 85 months and up from 2.8% last September. Romanian CPI inflation of 3.6% touched a 3-month low.

Wholesale turnover in South Africa fell 0.5% on month but were 1.5% greater than a year earlier in December.

Turkey‘s economy has been rebounding from a severe slump. Between December 2018 and December 2019, retail sales and industrial production climbed 11.0% and 8.6%. The on-year comparisons of these data only turned positive in September and for 2019 as a whole fell by 0.2% and 0.6%.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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