Dollar Down After Fed Expands Currency Swap Network.. Equities Up in Asia and Europe
March 20, 2020
The dollar fell overnight by 2.9% against the Australian dollar, 2.5% relative to the kiwi, 2.2% versus sterling, 2.0% vis-a-vis the loonie, 0.8% against the peso, 0.6% versus the yen and 0.4% relative to the euro and Swiss franc.
The swap line arrangement that enables central banks to exchange on a temporary basis their own currencies for dollars was expanded to nine other countries: Australia, Singapore, South Korea, New Zealand, Mexico, Norway, Denmark, Brazil, and Sweden.
Share prices in the Pacific Rim posted big gains Friday of 7.4% in South Korea, 6.4% in Taiwan, 5.8% in India, 5.1% in Hong Kong, and 4.3% in Singapore. Markets in Indoneisa, China, New Zealand and Australia went up 2.2%, 1.6%, 0.8%, and 0.7%. Japan missed out on the action, as that country is observing the Vernal Equinox holiday. In Europe, share prices have risen so far by 5.0% in France, 4.0% in Germany, 3.3% in Spain, 2.1% in Italy and 1.5% in Great Britain.
Amid this bargain hunting, ten-year sovereign debt yields fell overnight by 13 basis points in U.S. futures, 13 bps in the U.K., 12 bps in Switzerland, 10 bps in the Netherlands, 9 bps in Spain and Germany, and 7 bps in France.
Russia and Saudi Arabia remain at loggerheads over oil pricing and production, but the price of WTI crude rebounded 3.0% overnight. Comex gold strengthened 1.9%.
Investors have become increasingly impressed with the reaction of central banks to the exogenous shock posed by the coronavirus pandemic. Identified global cases of 253,927 thus far have been associated with 10,406 deaths.
On Wednesday, the European Central Bank created a new Pandemic Emergency Purchase Program, which to start totals EUR 750 billion on top of the EUR 120 billion of incremental quantitative stimulus announced after the scheduled Governing Council meeting earlier this month. Together these actions represent 7.3% of GDP in the common currency area. More will be forthcoming if deemed needed. A statement on the ECB website from President Lagarde asserts that “the coronavirus pandemic is a collective public health emergency unprecedented in recent history” and promises to “do everything necessary within our mandate to help the euro area through this crisis, because the ECB is at the service of the European people.”
Some central banks that cut rates already this month are circling back to ease again. For instance, the Bank of England, whose base rate was slashed to 0.25% from 0.75% on March 11, cut such again yesterday to a record low of 0.10% and also enhanced quantitative easing limits on gilt and corporate bond purchases by GBP 200 billion.
Likewise, the Bank of Norway, which had cut its policy rate to 1.0% from 1.5% on March 12, cut such again on the 19th after an unscheduled meeting to 0.25%, asserting simply that “the situation in the Norwegian economy has continued to worsen” in the past week. The reduction a week ago had been the first decrease since March 2016, and in between four 25-basis point hike had been engineered between August 2018 and September 2019. The Great Recession cyclical low from June to October 2009 had been at 1.25%, a full percentage point higher than in this new emergency.
Two other central banks today decided not to cut rates. The People’s Bank of China kept the one-year loan prime rate at 4.05% and the 5-year loan prime rate at 4.75%. There had earlier been cuts of 10 bps in February, 5 bps in November 5 bps in September and 6 bps in August.
The Bank of Russia had previously lowered its key interest rate from 7.75% prior to June 2019 to 6.0% after a 25-basis point cut in February. However, this easing cycle had to be put on indefinite pause this month because a tumbling ruble is likely to raise inflation above the 4% target in coming months. Although bank officials in a statement believe that weaker global and domestic growth as well as soft oil prices will eventually restore inflation to target next year, forward guidance that more rate cuts are likely was deleted.
Euroland’s current account surplus widened to a 0ne-year high of EUR 34.7 billion on a seasonally adjusted basis in January. The unadjusted surplus was only EUR 8.7 billion that month, but the surplus of EUR 356.4 billion over the past 12 reported months equaled 3.0% of GDP.
German producer prices fell 0.4% in February, their largest monthly drop since August, and were 0.1% lower than a year earlier. Energy items recorded a 2.5% on-year decline, while all other components of the PPI collectively went up 0.6%.
Irish producer price deflation lessened sharply in February to -0.8% from -4.3% in January.
South Korean producer prices dropped 0.3% on month, most in 7 months, during February, trimming their on-year advance to 0.7% from 1.1% in January.
Britain’s public sector recorded a surplus of GBP 0.39 billion last month versus 0.12 billion pounds a year earlier. Outstanding public debt at end-February equaled 79.1% of GDP.
Dutch consumer confidence printed at -2 in March from the fourth time in five months.
Belgian consumer confidence dropped to a 6-month low of -9 in March from -4 in February.
Canadian retail sales rose 0.4% on month and 3.4% on year in January.
Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of England, Bank of Russia, Euroland current account, European Central Bank, German PPI
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