Pandemonium on Many Fronts
March 9, 2020
The Covid-19 coronavirus continues to spread worldwide, with cases of about 111,500 so far, deaths of 3,833, and 13% of currently infected patients in serious or critical condition. Restrictions on movement have been tightened, many schools are shut, and riots have broken out in some prisons.
The price of oil has plummeted. Brent dropped over 30%, and WTI is down more than 20%. Sharply lower oil demand, reflecting in part reduced cruise ship usage due to the pandemic, had seen price slip-sliding in recent weeks. OPEC wanted to impose a production cut, but Russia wouldn’t agree. So Saudi Arabia is in response ramping up its output and offering oil at enormous discounts.
Several data reports today confirm that the coronavirus is having a profound impact on real economic activity. For example,
- China’s trade balance in January-February showed a deficit of $7.09 billion compared to an expected surplus of about $25 billion and a $50 billion adverse swing from a surplus of $43.7 billion a year earlier. After recording on-year growth of 7.6% in December, exports were 17.2% less in January-February than a year earlier.
- Japan’s Economy Watchers index sank from a reading in January of 41.9 to 27.4 in February, which is a 125-month low. The forward-looking Economy Watchers Outlook gauge fell to 24.6 from 41.8.
- Consumer confidence in Indonesia dropped 3.3% in February to a 4-month low.
Ten-year sovereign debt yields have dropped today by 35 basis points in U.S. Treasury futures and by 17 bps in Germany, 14 bps in Great Britain, 5 bps in France and 3 bps in Japan. Australia’s 0.59% yield is at a record low, but in Italy and Greece, yields have shot up by 24 and 32 basis points.
Stock markets in the Pacific Rim slumped 7.3% in Australia, 6.0% in Singapore, 6.6% in Indonesia, 5.2% in India, 5.1% in Japan, and 4.2% in Hong Kong and South Korea. Equity markets in Europe are down so far on the day by 10.2% in Italy, 7.2% in Spain, 6.6% in the U.K., 6.9% in France, 7.0% in Germany, and 4.7% in Switzerland.
The South African rand skidded to a 40-year low. The Russian ruble dropped to a 48-month low, and the Mexican peso hit a 3-year low. The dollar also appreciated 1.7% against the loonie. Alternatively, the dollar has fallen 3.1% against the yen, 1.3% relative to the Swiss franc, and 1.1% versus the euro. Gold has been comparatively steady.
The coronavirus has hit Japan at a particularly vulnerable time, as that economy was already reeling from a two-percentage point sales tax hike last October and harsh weather last quarter. Real Japanese GDP growth in the final quarter of 2019 has been revised to an annualized 7.1% contraction compared to the 3Q level. Non-residential business investment got revised to a 17.3% drop. The GDP price deflator was 1.2% higher than a year earlier.
Japan also reported a JPY 612 billion current account surplus in January and on-year declines in merchandise exports and imports of 4.0% and 3.9%. Seasonally adjusted exports were 2.8% lower than in December. Japanese bank lending and corporate bankruptcies last month recorded on-year rises of 2.1% and 10.7%.
An upside-data surprise reported today was the 3.0% recovery of German industrial production in January after declines in 3 of the 4 previous months including a 2.2% December drop. Production was still 1.3% lower than a year earlier, nonetheless.
Germany’s current account and trade surpluses in January of EUR 16.6 billion and 13.9 billion were smaller than those in December and January 2019. The seasonally adjusted EUR 57.6 billion trade surplus in the fourth quarter matched the third-quarter result.
Ireland’s construction purchasing managers index fell to a 3-month low of 50.6 in February.
Sweden’s current account surplus of SEK 38.8 billion was 48% bigger than a year earlier.
The Bank of France’s manufacturing sentiment index held steady for a third straight month in February, but confidence in the services and construction sectors each declined last month, prompting central bank officials to halve projected current quarter GDP growth to just 0.1%.
Canadian housing starts fell 1.9% last month, and Mexican CPI inflation accelerated 0.5 percentage points to a 7-month high in February of 3.7%.
Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: China trade balance, German current account and industrial production, Japanese GDP, oil price collapse
ShareThis
