Stocks and Bond Prices Tumble, and the Dollar Keeps Strengthening

March 18, 2020

Fear deepened on Wednesday. The number of covid-19 cases worldwide rose over 15,000 in the last 25 hours to 203,612, and 730 more reported deaths brings the pandemic total to 8,229. The U.S. senate continues to obstruct, even though Treasury Secretary Mnuchin reportedly made the prediction of 20-plus unemployment in the United States without passage of a huge fiscal stimulus.

Share prices in the Pacific Rim dived 6.4% in Australia, 5.4% in India, 4.9% in South Korea, 4.2% in Hong Kong, 1.8% in China and 1.7% in Japan. Declines so far in Europe, equal 5.2% in France, 5% in Germany, 4.4% in the UK., and at least 3% in Switzerland and Spain. In futures trading, the U.S. market fell its allowable limit.

The prices for sovereign debt also dropped sharply, and 10-year yields shot up 33 basis points in Italy, 25 bps in Spain, 13 bps in Germany, 10 bps in France and Great Britain, 5 bps in Japan and 3 basis points in U.S. futures.

WTI oil dived 5.7% to less than $25.41 per barrel, a level not seen in 17 years. Gold declined 1%.

The dollar advanced today by 4.7% relative to the Mexican peso, 1.4% against sterling, 1.3% versus the Aussie dollar, 0.9% vis-a-vis the Canadian dollar and 0.3% against the kiwi and yuan. But movements relative to the euro and Swiss franc were no more than 0.1%, and the yen rose 0.2%. The growing dollar problem can be better seen in comparisons of its value to those at the end of February 12 when U.S. stock prices set their record high. Since then, the U.S. currency has advanced 29% against the peso, 14% versus the Aussie dollar, 9% relative to the kiwi and sterling, and 8% against the Canadian dollar.

In U.S. state primary elections held yesterday in Florida, Illinois, and Arizona, former VP Biden won all three races, capturing about 60% of the votes in both Florida and Illinois and extending his delegate lead over Vermont Senator Sanders to a commanding 265 delegates.

The Central Bank of Iceland (Sedlabanki) at an unscheduled meeting lowered its 7-day term rate by another 50 basis points to a record low of 1.75%. The rate was cut by 50 basis points and reserve requirements were reduced to zero percent at the Bank’s Monetary Policy Committee’s March 11 meeting. In a statement released then, the spreading covid-19 pandemic was cited for the easing, and that was the motivation again today, which marked the third rate cut of 2020. The rate was reduced in February by 25 basis points in cut six times during 2019 by 25 basis points each time.

Japan’s customs clearance trade balance yielded a nonadjusted 1.11 trillion yen surplus in February, up from a JPY 329 billion surplus a year earlier. A 14% on-year plunge in imports dwarfed a 1% drop in exports. Imports from China were 47% lower thanĀ  in February 2019. The seasonally adjusted trade surplus ballooned to a 22-month high of JPY 498 billion due to a 6.1% on-month drop in imports and a 3.4% rise of exports.

Euroland’s seasonally adjusted trade surplus slid to a 6-month low of only EUR 17.3 billion in January as imports went up 2.5% and exports edged up only 0.1%. The unadjusted surplus was EUR 1.3 billion as adverse seasonal tendencies magnified the underlying deterioration.

A preliminary estimate of 1.2% CPI inflation in the euro area last month has been confirmed. Core inflation was also 1.2% in February. Inflation had been as low as 0.7% in October but was 1.5% in February 2019. German inflation of 1.7% and French inflation of 1.6% matched their readings of February 2019, but inflation in Belgium, Greece and the Netherlands was only half as high last month as their readings a year earlier.

Italian industrial orders posted their third on-year decline (1.8% in January) out of the past four reported months.

South African CPI inflation rose 0.1 percentage point to a 15-month high of 4.6% in February. Core CPI also rose 0.1 percentage point to 3.8%. South African retail sales increased 0.9% on month and 1.2% on year in January.

In the year to February, Portuguese producer prices fell 3.0%, their largest 12-month rate of decline in 43 months. Austrian consumer price inflation that month of 2.2% was at a 15-month high.

The Westpac measure of Australia’s index of leading economic indicators in February, -0.4%, fell by the most since the last month of 2008.

New Zealand’s NZD 2.657 billion current account deficit last quarter was 26.6% smaller than a year earlier but the full-2019 deficit still equaled a hefty 3.0% of GDP.

Canadian CPI inflation settled back 0.2 percentage points to 2.2% in February, and the Bank of Canada’s measures of core inflation also dipped marginally.

U.S. housing starts fell 1.5% last month, which is somewhat less than had been forecast. However, building permits dropped 5.5%.

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

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