Decline Continues in Equity Markets
February 26, 2020
The dollar climbed overnight by 0.6% against sterling, 0.5% relative to the Australian dollar, 0.3% versus the yen and peso, 0.2% vis-a-vis the loonie, and 0.1% against the yuan. The dollar also extended its uptrend against several developing country currencies like the South African rand and South Korean won. Alternatively, the dollar dipped 0.2% against the Swiss franc and 0.1% versus the euro.
Most stock markets fell further today: 2.3% in Australia, 1.7% in Indonesia, 5.2% in Thailand, 1.5% in New Zealand, 1.3% in South Korea, Singapore and Pakistan, 1.0% in India, South Africa, and Germany so far. In Greece where the first COVID-19 case has been reported, the equity market has so far plunged 3.3%, and there have also been slides in Europe of 0.9% in Switzerland and 0.7% in France and Great Britain.
10-year sovereign debt yields have mostly risen in a reversal of recent trends, with overnight increases of five basis points in Spain and Portugal, 12 bps in Greece, 4 bps in Italy, 3 bps in France, 2 bps in Japan and Germany and a single basis point in the U.S. Treasury yield.
West Texas Intermediate crude oil sank 1.6% and is below the $50 psychological threshold. The price of gold dipped 0.2% but remains about midway between $1600 and $1700 per ounce versus $1460 as recently as late November.
Some data released today already reflect the coronavirus panic.
- Chinese motor vehicle sales in January were 18.7% lower than a year earlier.
- The Swiss ZEW expectations index printed at +7.7 in February, down from 8.3 in January and 12.5 in December.
- British shop prices posted a 0.6% 12-month rate of decline in February, the biggest on-year drop in five months.
- Australian construction work completions dropped 3.0% on quarter and 6.6% on year last quarter.
- Real GDP in Hong Kong recorded a third straight quarter-on-quarter contraction, confirming a recession there. GDP was 0.3% lower than in 3Q and 2.9% below the level in the final quarter of 2018. Real GDP growth swung from a 2.9% expansion in 2018 on average to a 1.2% contraction last year. In the final quarter, consumption and investment were 2.9% and 16.7% lower than a year earlier, but a 7.3% plunge in imports versus a 2.7% drop in exports mitigated the slide in GDP.
- Japanese supermarket sales in January (down 2.0% on year) posted a fourth straight year-on-year decline.
- South Korean business sentiment swung from an 8-month high of 76 in January to a 3-year low of 65 in February.
- Finnish PPI inflation of -1.6% in January was the most deflationary reading in 41 months.
Not all the economic reports today were depressing, however.
- French consumer confidence in February held at January’s 2-month high instead of dipping somewhat as analysts were expecting.
- Austria’s manufacturing purchasing managers index went up a full point in February to a one-year high of 50.2.
- Manufacturing output in Singapore shot up 18.2% in January and recorded the largest on-year advance (3.4%) in three months.
- Norwegian unemployment of 3.9% in the three months through January was a tad lower than forecast and matched the rate in the previous 3-month period.
- A 3.2% on-year rise in Mexican retail sales in December constituted a 13-month high.
In central banking news, the Bank of Israel and Central Bank of Hungary yesterday each announced unchanged policy interest rates. Israel’s key rate has been at 0.25% since a 15-basis point hike last November. Israel faces a low inflation environment and sub-trend growth. The shekel has been strengthening. Forward monetary policy guidance anticipates a prolonged period of interest rates at the current level with risk skewed to the downside. The base rate at Magyar Nemzeti Bank has been 0.90% since a 15-basis point cut in May 2016, and the overnight deposit rate has been -0.05% since a 10-basis point hike last March. The statement released by Hungary’s Monetary Policy Council anticipates slower economic growth and inflation around 4.0%.
Fed Vice Chairman Clarida became the latest monetary official to say that it’s too early to know if the effect of the coronavirus will make an easier monetary stance necessary. For now, the Fed is in wait-and-see mode.
Last night’s debate of Democratic Party candidates for president to not yield a clear winner or loser. The banter was very excited at times, and more criticism was directed at Trump than had been the case at the prior debate. The primary in South Carolina on Saturday is the last single primary test. Super Tuesday on March 3 looms beyond that.
U.S. new home sales data for January will be reported at 10:00 EST (15:00 GMT).
Today is the 35th anniversary of the dollar’s turning point during the Reagan Administration. A mix of loose fiscal policy but very tight monetary policy had strengthened the U.S. currency tremendously during Reagan’s first term, and it climbed very sharply after the election of 1984 and through most of February. Peak levels such as DEM 3.478 equivalent to roughly $1.778 per euro were hit on February 26, 1985. The G5’s Plaza Accord on September 22, inspired by concern over the huge U.S. trade deficit, gave further impetus to dollar selling, and by end-1987, the mark at recovered all the way to DEM 1.576 per dollar.
Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Israel, Central Bank of Hungary, French consumer confidence, Hong Kong GDP, Plaza Accord
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