Markets Turning Increasingly Disorderly

March 6, 2020

Share prices are down over 3.0% in the U.K., France, Germany, Spain, Italy, and Switzerland even though a decent U.S. labor market report is anticipated. Equity markets in the Pacific Rim closed down 2.7% in Japan, 2.8% in Australia, 2.5% in Indonesia, 2.3% in India, 2.2% in South Korea, 2.0% in New Zealand and 1.9% in Singapore.

The stampede into sovereign debt securities is even more frightening. The U.S. Treasury yield dropped 12 basis points further to 0.79%. Such was at 1.63% as recently as February 12 and 1.92% at the end of 2019. The 10-year sovereign debt yields fell overnight by 13 basis points in Singapore and New Zealand, 17 bps in Canada, 10 bps in Australia, 9 bps in the U.K., 4 bps in Germany and 3 bps in Japan.

The euro has climbed from $1.0778 on February 21, its weakest level in 34 months to an intra-day high this morning of $1.1340, its strongest level since July 1 of last year. The dollar has also dropped to a 7-month low against the yen and is down 1.2% from Thursday’s closing level. In addition, the U.S. currency shows overnight losses of 0.9% against the kiwi, 1.0% versus the Swiss franc, and 0.4% relative to sterling.

The price of West Texas Intermediate crude oil plunged 4.3% to a multi-year low after Russia rejected OPEC efforts to secure a cut in production. Gold is 1.1% higher.

All this chaos stems from fear triggered by the Covid-19 pandemic, whose global cases now top 100,000, 20% of which have surfaced in 93 countries and territories away from China where the illness began. Deaths worldwide now exceed 3,000, and 15% of currently active infections involve people in serious or critical condition. Investors are bailing, not merely from fear that this could be the second coming of the 14th century black plague that killed nearly a quarter of the world’s population but also the concern that economic activity as we know it cannot occur in an environment where person-to-person contact poses such a threat.

Economic data reports continue to have little effect on the markets.

German industrial orders unexpectedly leaped 5.5% in January, their first advance since October. Their 12-year change swung to a 1.4% increase from an 8.9% drop recorded in the year to December. Export orders surged 10.5%, but domestic orders dropped 1.3% on month.

The French current account deficit widened to EUR 2.83 billion in January, a 5-month high.

Spanish industrial production recovered just 0.2% in January, resulting in a larger on-year decline of 2.1%, most in 10 months.

Italian retail sales were unchanged on month in January but posted their largest on-year advance (1.4%) in a half year.

Greek real GDP dropped 0.7% last quarter, trimming the on-year growth rate to an 11-quarter low of 1.0%.

Japanese household spending fell 1.6% on month and 3.8% on year in January, their fourth bad month in a row. This string of trouble began after the October sales tax hike, was complicated by a subsequent typhoon, and is now being hampered by the covid-19 virus.

Japan’s index of leading economic indicators sank to its lowest level since November 2009 in January. Japanese international reserves increased $35.3 billion in the first two months of 2020 on top of a $52.8 billion advance in 2019. A 16.6% on-year decline in Japanese imports in the first 20 days of February caused the trade balance over that span to swing to a JPY 519 billion surplus from a JPY 178 billion deficit a year earlier. Finally, labor cash earnings in January were 1.5% greater than a year earlier compared to an expected 0.2% increase.

Australian retail sales fell 0.3% in January, their second straight monthly drop after a 0.7% decline in December. The 2.3% on-year advance represents a 2-year low.

Several Fed district presidents speaking last night — Kaplan, Kashkari, and Williams — hinted at more rate cuts if needed. Even though they recently cut by a larger-than-usual 50 basis points, however, investors doubt that monetary policy can counter the coronavirus’ blow to economic activity. A more impressive U.S. policy change would be the removal of all tariffs on Chinese imports.

Still ahead: U.S. and Canadian labor statistics and monthly trade balances.

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

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