Dollar, U.S. Share Prices and 10-Year Treasury Yield Fall

March 2, 2020

The mood of investors turned dark again even before the U.S. market open in spite of overnight share price rebounds of 3.2% in China, 1.0% in Japan, 0.8% in South Korea and 0.6% in Hong Kong.

A brief respite was aided by special statement from Fed Chairman Powell:

The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy.

And Bank of Japan Governor Kuroda had this to say:

Global financial and capital markets have been unstable recently with growing uncertainties about the outlook for economic activity due to the spread of the novel coronavirus. The Bank of Japan will closely monitor future developments, and will strive to provide ample liquidity and ensure stability in financial markets through appropriate market operations and asset purchases.

However, mounting evidence that the virus has spread outside of China to the other continents and weak February purchasing manager data have investors persuaded that monetary policy is poorly suited to combat the negative effects of the coming pandemic.

U.S. share prices see-sawed wildly in the first 20 minutes of trading ahead of the ISM manufacturing PMI report.

In Italy, which had been Europe’s hardest hit country thus far by the virus, the stock market is down nearly 3%, and share prices in Germany, France and Spain are trading more than 0.5% lower.

The 10-year U.S. Treasury yield dropped 8 basis points overnight to a new record low of 1.07%, and its German and British counterparts are down by 4 and 3 basis points.

The dollar has lost 0.8% against the euro and Swiss franc, 0.4% versus the yuan, Australian dollar and loonie, and 0.2% relative to the yen and kiwi. Alternatively, the dollar is up 0.8% against the peso and 0.4% versus sterling.

Commodities have been well-bid, with gold and oil rising by 2.3% and 1.6%.

The February purchasing managers survey findings in manufacturing attest to an extraordinary lengthening of delivery times for needed parts broadly weaker overall operating conditions especially in Asia where, like the SARS epidemic of 2003, this latest health scare originated.

The IHS-compiled U.S. manufacturing PMI dropped to a 6-month low of 50.7 in February, while Canada’s purchasing managers index in manufacturing printed at a 1-year high of 51.8.

Japan’s PMI dropped 1.0 point to a 45-month low of 47.8. (Remember that sub 50 readings connote deterioration, and the lower such readings are, the faster is the rate of deterioration). Orders sank at their fastest pace in 86 months, and business sentiment regarding the outlook in manufacturing was weaker than in January.

The government-authorized Chinese NBS composite, manufacturing and non-manufacturing PMI results last month of 28.9, 35.7, and 29.6 were each record lows and down precipitously from January scores of 53.0, 50.0, and 54.1. The private Chinese manufacturing PMI compiled by Caixin swung from 51.1 in January to 40.3 in February, shattering the previous historic low of 40.9 in November 2008.

The PMI results in Vietnam, 49.9, constitutes a 4+ year low. February PMI readings in Malaysia and South Korea of 48.5 and 48.7 were 5- and 4-month lows. The Thai and Taiwanese PMI’s were likewise below 50 and at 3-month lows. India’s PMI settled back from January’s 8-year low to a 2-month low of 54.5, and Indonesia‘s PMI climbed above 50 for the first time since June to a 17-month high of 51.9. The Filipino PMI rose 0.2 points to a 13-month high of 52.3.

The PMI compiled by Commonwealth Bank of Australia rose 0.6 points to a 5-month high of 50.2, while that from AIG dropped 1.1 points to a 59-month low of 44.3.

Turkey‘s PMI increased 1.1 points to a 2-year high of 52.4, while the ABSA-compiled South African PMI dropped 0.9 points to a 127-month low of 44.3.

Euroland’s PMI rose 1.3 points to a 1-year high of 49.2. This was the 13th straight reading below 50, and the group’s three most influential economies (Germany, France and Italy) also had sub-50 readings.

The British manufacturing PMI increased 1.7 points to a 10-month high of 51.7, but the report noted significant supply-chain disruptions already beginning.The Swiss and Swedish manufacturing PMIs improved to 11- and 15-month highs of 49.5 and 53.2.

In Denmark, which has been cited by U.S. Democratic presidential candidates as an example of a well-run economy, the manufacturing PMI fell below 50 fro the first time in 6 months to 49.1. Norway’s PMI rose 1.1 points to a 2-month high of 52.2 but had been at 55.0 in December.

Russia’s PMI edged 0.3 points higher to a 6-month high but stayed below 50 at 48.2. February PMIs in Poland, Hungary, and the Czech Republic printed at a 6-month high of 48.2, a 67-month low of 50.1, and a 9-month high of 46.6.

Brazil’s PMI rose 1.3 points to a 3-month high of 52.3. Mexican business confidence dropped 0.8 points to 47.6, its 6th sub-50 reading in seven months.

Joe Biden’s big win in the South Carolina primary convinced Tom Steyer and Pete Buttigieg to drop out of the race. Even so, polls suggest that Bernie Sanders will be the big winner in tomorrow’s Super Tuesday of 15 primaries. Sanders and Warren, the two progressives, took only 27% of South Carolina’s vote, and therein lies the disconnection in the Democratic Party’s way of selecting candidates for the general election and why Donald Trump seemingly has an excellent chance of winning a second term, barring a catastrophic evolution of the covid-19 virus from both a health and economic standpoint.

In other data reported today,

Japanese business investment sank 3.5% last quarter, it greatest quarterly drop since early 2013, and corporate profits and sales were 4.6% and 6.4% below their year-earlier levels.

Indonesian CPI inflation accelerated 0.3 percentage points to a 3-month high in February of 2.98%. Core inflation, however, eased a tad to a 20-month low.

South Korea’s trade surplus in February widened to a 4-month high of $4.115 billion and was 47% bigger than a year earlier.

There were 70.9 thousand British mortgage approvals in January, the most in 47 months. consumer credit and M4 money grew more sharply than forecast.

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

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