Provocations by Chinese National People’s Congress and Special Central Bank Meetings in Japan and India

May 22, 2020

China’s government has decided to crack down on Hong Kong dissonance with a series of new security laws. Protesters will have fewer liberties and will be punished more severely. Hong Kong’s stock market plunged 5.6% in response.

At China’s National People’s Congress, the tradition of setting an annual growth target was abandoned in a sign of great uncertainty surrounding the reopening of that economy.

Share prices in other countries around the Pacific Rim fell 2.0% in Singapore, 1.9% in China, 1.8% in Taiwan, 1.4% in South Korea and 0.8% in Japan. Markets in Europe are down 0.8% in Great Britain, 1.4% in Switzerland, 0.3% in Germany and 0.2% in France. U.S. futures point to a drop as well.

The ten-year U.S. Treasury yield is three basis points lower and 10-year sovereign debt yields dipped a basis point each.

A fresh wave of geopolitical risk aversion was also reflected in a 5.4% slide in the price of WTI crude oil and a 0.8% rise in the price of gold overnight. And the dollar was better bid overnight, rising by 0.7% against the peso, 0.6% versus the Australian dollar, 0.5% relative to the loonie, 0.4% vis-a-vis sterling and the euro, 0.3% versus the kiwi, and 0.2% against the yuan. The yen advanced 0.1% against the dollar.

The Bank of Japan held an emergency unscheduled policy Board meeting that lasted just under an hour and did not change the the short-term policy interest rate of -0.1% or the 10-year JGB yield target of around zero percent. However, officials did unveil a new lending facility for small to mid-sized firms and moved out the deadline for actions against the Covid-19 virus from September of this year to March of 2021. Also, a joint statement was released by BOJ Governor Kuroda and Finance Minister Aso to underscore that monetary policy and fiscal policy are being closely coordinated.

The Reserve Bank of India Monetary Policy Committee also held an emergency policy review ahead of the regularly scheduled one previously set for early June. The Committee announced a 40-basis point reduction of its repo rate to 4.0%, which follows a previous 75 basis point cut in late March. Officials released a statement enumerating a variety of other regulatory steps and laying out its logic behind the new actions:

The MPC is of the view that that the macroeconomic impact of the pandemic is turning out to be more severe than initially anticipated. Beyond the destruction of economic and financial activity, livelihood and health are severely affected. Judging that the risks to growth are acute, while the risks to inflation are likely to be short-lived, the MPC believes that it is essential now to instill confidence and ease financial conditions further. This will facilitate the flow of funds at affordable rates and rekindle investment impulses.

Japanese CPI inflation fell 0.3 percentage points to 0.1% in April, and core inflation swung below zero to -0.2%, which is a full percentage point below January’s level.

British retail sales volume plunged 18.1% in April and posted a 12-month decline of 22.6%. Both drops were the largest ever. The impact of Britain’s lockdown was also reflected in public sector net borrowing that month of GBP 61.357 billion, which was almost twice expectations and lifted outstanding public debt sharply to 97.7% of GDP. Lastly, the GFK measure of consumer confidence in the U.K. slid another index point to -34 in May from -7 just three months earlier.

Industrial orders in Spain were 16.4% fewer in March than a year earlier, their largest on-year decline in 126 months.

Polish retail sales tumbled 13.1% on month and by a larger-than-forecast 22.6% on year in May.

Irish producer prices were 6.1% lower in April than a year earlier, which compares with year-on-year declines of 4.2% in March and 0.8% in February.

Mexican retail sales fell 0.8% in March and swung from an on-year 2.5% rise in February to a 12-month 1.3% decline.

New Zealand retail sales volume dropped 0.7% last quarter, reducing its on-year increase by a full percentage point to an 8-year low of 2.3%.

The world is in the grasp of a dangerous disease pandemic, and the two largest economies — China and the United States — are spiraling into an evermore fractious relationship.

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

 

 

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