Partial Reversal of Monday’s Extreme Financial Market Moves but Mood Remains Extremely Guarded

March 10, 2020

Today’s rebound in equities and sovereign debt yields looks more like a dead-cat bounce than a trend reversal because the Covid-19 pandemic is still widening, skepticism about policy effectiveness and forcefulness is enormous, and the Saudi-Russian oil war is unsettled.

Share prices in the Pacific Rim rose 1.8% in China, 3.1% in Australia, 1.6% in Indonesia, 1.4% in Hong Kong and 0.9% in Japan. Equities so far in Europe have risen 3.0% in Switzerland and the U.K., 2.8% in France,  2.2% in Germany, 1.3% in Spain and 0.7% in Italy.

Ten-year sovereign debt yields rebounded 11 basis points in the U.S., the Netherlands, and U.K., 9 bps in Germany and 7 bps in Japan but fell 19 bps in Greece and 11 bps in Italy.

The price of West Texas Intermediate crude oil recovered 8.5% but remains very low at $33.77 per barrel. Gold eased 0.6%.

The dollar rallied 1.9% against the yen, 0.7% versus the Swiss franc, and 0.6% relative to sterling but dived 2.6% against the Australian dollar. The Russian ruble and Mexican peso were supported by central bank intervention and have trimmed Monday’s losses.

Worldwide Covid-19 cases have reached 115,759 and resulted so far in 4,085 deaths.

To counter rising inflation fed by the depreciation of the Kazakhstani tenge, monetary officials at the National Bank of Kazakhstan raised their key interest rate by 275 basis points to 12.0%. Such was the first hike since a 25-basis point increase last September and leaves the rate level at a 38-month high.

The plunging Japanese stock market is allegedly creating doubt about the political sustainability of the Bank of Japan’s heavy asset buying stimulus. At Nikkei levels below 19,500, the central bank’s portfolio of equities would be showing a paper loss.

The final estimate of real GDP growth in the euro area matched the preliminary 0.1% quarter-on-quarter increase but revised the year-on-year comparison up 0.1 percentage point to 1.0%. Business investment rose 4.2% after a 3.8% third-quarter plunge. Personal consumption and government spending edged up just 0.1% and 0.3%, but net foreign demand and inventories respectively depressed the GDP growth rate by 0.9 and 0.1 percentage points.  GDP grew 1.0% in 2019, down from 1.3% in 2018. Employment last quarter was 0.3% higher than in 3Q and 1.1% greater than a year earlier.

Chinese¬† CPI inflation eased back to a 2-month low of 5.2% in February from January’s 8+ year high of 5.4%. Producer prices were 0.4% lower than a year earlier in February, their 7th on-year drop in 8 months.

Italian industrial production leaped 3.7% in January, the most in 149 months and resulting in a 0.1% on-year dip, the smallest 12-month decline in the last 11 months. French industrial production, which had dropped 2.5% in December, rose 1.2% in the following month.

Same-store sales in the U.K. were 0.4% lower than a year earlier in February after being unchanged on year during January.

Several European countries released February consumer price data. Norwegian CPI inflation halved to an 89-month low of 0.9% last month, and Danish CPI inflation remained below the 1% threshold at 0.8%.. CPI inflation in Hungary fell 0.3 percentage points to a 2-month low of 4.4%, while Czech CPI inflation ticked up to a 95-month high of 3.7% from 3.6% in the prior month. Greek consumer prices dropped 0.5% on month and rose just 0.2% on year.

Japanese machine tool orders in February were 30.1% fewer than a year before. Their on-year drop has been at least 30% in eight straight months, and economic conditions almost certainly are deteriorating significantly this month. Japanese M2 money grew 3.0% in the year to February, up from 2.8% in January and 2.4% in full-2019.

Indonesian retail sales fell 7.5% in January and posted a 0.3% 12-month rate of decline versus a 0.5% on-year drop in December but an average 2.5% on-year rise in October-November.

Australia’s business confidence index fell 3 points to a 79-month low in February. Business conditions printed at “zero” versus +2 in January, +3 in December and +4 in both October and November.

Small business sentiment in the United States rose 0.2% in February to a 3-month high, but coronavirus fear has escalated this month.

President Trump is meeting today with congressional republicans to hammer out a fiscal stimulus package that he hopes to feature payroll tax cuts and sick leave relief.

U.S. Democratic Party primaries today are occurring in Michigan, Washington, Idaho, Missouri, North Dakota, and Mississippi. Recent opinion polls suggest that Biden will have another good day. Over 350 delegate seats will be allocated.

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

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