Continuing Market Volatility, an Unscheduled Bank of England Rate Cut, and Big Night for Biden

March 11, 2020

Share prices in Asia fell 2.3% in Japan, 2.8% in South Korea, 3.6% in Australia, 1.7% in Singapore and 0.9% in China. U.S. futures are down, but in Europe, stocks have so far risen 1.3% in France, 1.0% in Germany, 0.7% in Spain, and 0.6% in both the U.K. and Switzerland.

The ten-year U.S. Treasury yield fell 11 basis points overnight, while counterparts are up 3 bps in Japan and Great Britain and 2 basis points in Germany.

A continuing standoff over oil policy between Russia and Saudi Arabia saw the price of WTI oil slump 3.1% so far today. Although the Trump administration considers Russia and Saudi Arabia to be close friends, no sign has emerged of the U.S. mediating this dispute.

The dollar has fallen so far today by 1.0% against the kiwi, 0.6% versus the yen, 0.4% relative to the Swiss franc and Aussie dollar, 0.2% against the loonie, and 0.1% vis-a-vis sterling and the yuan. Gold rose marginally.

Coronavirus cases worldwide have swelled to 121,175, and 4,377 have died from the disease. 12% of still active cases involved patients in serious or critical condition. Markets widely accept the reality that policy efforts to limit the pandemic will inevitably depress short-term growth.

Joe Biden won 64 more delegates in the six Democratic Party primaries yesterday than Bernie Sanders, giving the former vice president a commanding 823 to 663 overall lead in the delegate count. Biden won primaries in Michigan, Mississippi, Missouri, and Idaho. Sanders captured North Dakota, and Washington produced a virtual dead heat, with each candidate capturing 17 delegates.

At an unscheduled meeting of the Bank of England’s Monetary Policy Committee, members voted unanimously to cut the base rate by 50 basis points, thus reversing the two 25-bp hikes engineered in November 2017 and August 2018 and restoring the rate to the post-Brexit level of 0.25% reached in the second half of 2016. According to a released statement, this action is intended to ” to support business and consumer confidence at a difficult time, to bolster the cash flows of businesses and households, and to reduce the cost, and to improve the availability, of finance.” The committee also unveiled a new term funding mechanism with incentives to aid smaller firms. The statement asserts that, “although the magnitude of the economic shock from Covid-19 is highly uncertain, activity is likely to weaken materially in the United Kingdom over the coming months.”

Reported British data today showed

  • Weaker than forecast industrial production in January, a 0.1% dip from the prior month and a 2.9% drop compared to January 2019, which is the largest on-year slide in 83 months.
  • A 0.8% monthly decline in construction output In January, which trimmed the on-year rise to a 3-month low of 1.6% from 5.0% in December.
  • An unexpected goods and services trade surplus of GBP 4.212 billion in January versus a deficit of GBP 1.84 a year earlier. The merchandise trade deficit rose to GBP 3.72 billion in January from GBP 1.418 billion in December.
  • The monthly measure of British GDP stagnated in In January and was just 0.6% greater than a year earlier. GDP in November-January was also unchanged from its average in August-October.

Consumer confidence in Australia slumped 3.8% this month to a five-year low.

South African business confidence dropped from 26 last quarter to a 21-year low of 20 this quarter.

Italian producer prices fell 0.2% on month and 2.3% on year in January. This was the seventh on-year drop in a row.

Portuguese consumer prices dropped 0.6%, their fourth monthly decline in a row, and were just 0.4% higher than a year earlier.

Romanian CPI inflation of 3.1% in February constitutes a 28-month low.

Chinese yuan lending by banks fell to CNY 906 billion in February, a 4-month low, while the M2 stock of money grew at an 8.8% on-year pace after 8.4% in January and 8.7% in December.

U.S. total and core CPI inflation in February of 2.3% and 2.4% were each 0.1 percentage point higher than forecast but will not affect monetary policy, which is now focused on the priority of mitigating the negative economic shock of the coronavirus. Recession is highly likely.

Canadian capacity usage fell 0.3 percentage points last quarter to 81.2%.

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

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