A Session of Counter-Trend Movement and Continuing Volatility

March 13, 2020

Yesterday’s stampede out of risk assets continued in Asia but reversed in Europe.

  • Equities fell 6.1% in Japan, 4.0% in India, 3.4% in South Korea 1.7% in Singapore, 1.2% in China and 1.1% in Hong Kong.
  • Share prices in Europe have climbed 7.1% in the U.K., 7.6% in Switzerland, 9.4% in Spain, 14.4% in Italy, and 5.9% in Germany. A big rise is indicated at the U.S. open.
  • 10-year sovereign debt yields jumped 19 basis points in Australia, 16 basis points in Germany, 14 bps in the U.S. and the Netherlands, 8 bps in France and 6 bps in Great Britain but dropped 13 bps in Italy.
  • The price of WTI oil rebounded 5.7% overnight, while that of gold dropped 0.8%.
  • Bitcoins have lost half their value in two days.
  • The dollar on net shows gains of 2.1% versus the yen, 1.5% relative to sterling and 0.7% vis-a-vis the Swiss franc but is also down 1.0% against the peso, 0.6% versus the yuan, 0.5% vis-a-vis the loonie, 0.4% against the euro and Australian dollar and 0.3% versus the kiwi.

Overnight news doesn’t explain the turnaround. The pandemic has swelled to 138,271 cases and deaths so far moved above 5k to 5,082. The White House and Congress couldn’t agree on some of the big stimulus items and broke that goal into two parts. A package of less contentious items targeted at the most vulnerable people in this crisis is close to approval. On the central banking front, the People’s Bank of China cut reserve requirements on some accounts, which will inject CNY 550 billion (less than $80 billion) of fresh liquidity. And the Bank of Norway cut its key reference rate by 50 basis points to 1.0%, reversing hikes that were implemented last September and June. No significant data surprises emerged. The Central Reserve Bank of Peru’s reference rate was left unchanged at 2.25%.

Practically all professional sports in America, many shows, and campus activities has been halted indefinitely. Many colleges are converting to on-line off-campus instruction. A big uncertainty is the length of time before a restoration of normalcy will be possible. In conjunction with reduced travel and restaurant meals, these disruptions represent a huge disruption in activity that GDP captures, and the meter is running. Some of the loss can simply not be recovered later.

German CPI inflation was confirmed at 1.7% in February matching the flash estimate and January’s 6-month high. German wholesale prices dropped 0.9% both month-on-month and compared to a year earlier during February.

French CPI inflation last month was also left unrevised at the initial estimate of 1.4%, a 3-month low.

Japan’s tertiary index of service sector activity rose 0.8% in January but was 1.1% lower than a year earlier. In calendar 2019, the tertiary index had increased just 0.6%.

New Zealand’s manufacturing purchasing managers index improved 3.4 index points to a one-year high of 53.2. Food price inflation in New Zealand slowed 0.4 percentage points to 3.1% in February following January’s 100-month high.

Foreign direct investment in China was 25.6% less than a year earlier in February, reflecting the coronavirus and Lunar New Year effect. The combined drop in January-February was 8.6% on year versus a 5.8% increase in 2019.

Swedish unemployment climbed to a 56-month high in February of 8.2% and increased half a percentage point to 7.6% on a seasonally adjusted basis.

Poland’s 4.7% CPI inflation rate in February was 0.3 percentage points higher than in January and the most in 99 months.

Finnish CPI inflation slowed to a 3-month low of 0.8% last month.

Malaysian industrial production was unchanged on month and only 0.6% higher in January than a year earlier.

Turkish industrial production and retail sales each fell on month in January and decelerated to 12-month gains of 7.9% and 9.6%.

Mexican industrial production recorded a 15th consecutive year-on-year decline in January, and at -1.6% such was greater than the 1.0% drop in the year to December.

U.S. import prices recorded declines in February of 0.5% versus January and 1.2% compared to a year earlier. The preliminary U. Michigan/Reuters estimate of U.S. consumer sentiment for March will be reported later this morning.

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


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