Worst Day Yet

March 12, 2020

Ironically on the one-month anniversary of the DJIA record high close, financial markets have experienced a calamitous session, and the catalyst for intensifying chaos was President Trump’s prime-time speech last night on the coronavirus pandemic. The tally of global cases stands now at 129,296 with 4,749 dead so far.

Equity markets fell today by 11.7% in Thailand, 8.2% in India, 7.4% in Australia, 5.5% in New Zealand, 5.0% in Indonesia, 4.4% in Japan, 4.3% in Taiwan, 3.9% in South Korea, 3.8% in Singapore, 3.7% in Hong Kong, and 1.5% in China. Markets in Europe show losses of more than 5.0% in Italy, Switzerland, Spain, Germany, France and Great Britain, and the loss in U.S. futures has hit its limit.

The price of a bitcoin plunged 28% to a 10-month low of $5,678 overnight. Record lows were also touched by energy-sensitive currencies like the Mexican peso and Norwegian krone. The Russian ruble fell to a 47-month low.

The dollar against some other widely watched currencies rose 0.7% against sterling to a 21-week high, 0.5% versus the loonie, 1.6% relative to the Australian dollar, 1.0% vis-a-vis the kiwi, and 0.7% against the yuan. EUR/USD has been an oasis of stability, with the euro dipping just 0.2% on balance. The Swiss franc is unchanged against the dollar, while the yen’s 1.1% overnight advance to 103.39/$ makes Japan’s currency regrettably the strongest money of the bunch. Japanese economic data have weakened sharply of late, and currency appreciation is the last thing it needs.

The ten-year U.S. Treasury yield dived 16 basis points to 0.71%. Yields on 10-year British gilts and German bunds are 5 and 2 basis points lower, but ten-year sovereign debt yields in Greece, Italy, and Australia jumped by 18, 14, and 8 basis points today.

The price of West Texas Intermediate crude oil sank 5.9%, and gold slipped 0.4%.

Investors are still waiting on the ECB’s policy decision, which was due over an hour ago. New stimulus is widely expected, including a move more deeply into negative territory of the overnight deposit rate, which has been -0.5% since September.

In the meantime, the National Bank of Serbia’s key policy rate was cut 50 basis points to 1.75% earlier today. A statement from the central bank’s Executive Board justifies the reduction as a “timely and adequate response to heightened uncertainty in the international environment triggered by the spread of Covid-19” and observes that several influential central banks like the Federal Reserve, Bank of Canada, Reserve Bank of Australia, and Bank of England have also loosened their monetary policies. Explicit mention is also made that the ECB no doubt will be doing so later today. The policy rate was last cut in November. At 1.75%, it now becomes half the 3.5% level at the start of 2018 and far below a peak of 11.75% reached briefly from February to May of 2013. Serbian inflation of 2.0% (core 1.0%) is manageable.

Industrial production in the euro area rebounded 2.3% in January from a trio of declines (-0.3% in October, 0.6% in November and 1.8% in December). Output was still 1.9% lower than a year earlier. The rebound in January was paced by capital goods and intermediate goods.

The Japanese Ministry of Finance reported a drop in large firm business sentiment to -25.3 this quarter from -16.3 in the fourth quarter. Japanese domestic producer prices fell 0.4% on month in February, halving their on-year advance to 0.8% from 1.5% in January.

Chinese motor vehicle sales in coronavirus-plagued February were 79% fewer than a year earlier.

The identified number of coronavirus fatalities in Italy zoomed over 30% today, prompting even tighter restrictions on travel.

President Trump’s announced 30-day ban on incoming travel from 26 continental European countries has created immense confusion and fear. Meanwhile, his stimulus suggestions have been perceived as woefully inadequate, and there is dismay in America regarding the miserly use of virus testing.

Consumer confidence fell in Thailand by 3.7% to a 102-month low.

Industrial production in South Africa rose 2.5% in January but were 2.0% lower than a year earlier. Industrial production in the Czech Republic was 1.4% below its year-earlier level in January, and Romanian industrial output fell on year for a 10th straight time in February, this time by 3.1%.

Swedish CPI inflation slowed to a 42-month low in February of 1.0%. Irish CPI inflation of 1.1% fell to a 3-month low.

Two U.S. data releases undershot expectations. New jobless insurance claims stayed very low at 211k last week. Producer prices fell by a surprisingly large 0.6% on month in February, cutting their 12-month rate of increase by 0.8 percentage points to only 1.3%.

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



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