Picking Apart the Pieces of Monday’s Rout

March 17, 2020

Stocks overnight did not fall as steeply as such had Monday in the United States. In the Pacific Rim, share prices fell 2.5% in South Korea, 2.9% in Taiwan, 5.0% in Indonesia, 2.3% in India, 1.7% in Singapore but just 0.3% in China. Equities rebounded 5.8% in Australia and 0.1% in Japan. European markets show declines of 1.8% in the U.K., 1.5% in Germany, 1.4% in France, and 1.0% in Switzerland but a 1.1% rebound in Spain. U.S. futures suggest some bargain-hunting.

The dollar emerged from yesterday’s financial market debacle on a strongly firmer note, with overnight gains of 2.0% and 1.8% against the Aussie and New Zealand dollars, 1.6% relative to the yuan, 1.3% relative to sterling, 1.1% versus the Canadian dollar and 0.9% vis-a-vis the euro and yen. The Mexican peso touched an all-time low against the dollar of 23.181.

Ten-year sovereign debt yields have risen so far today by 21 basis points  in Italy, 17 bps in Spain, 14 bps in France, 7 bps in German bunds and British gilts, and 6 basis points in the case of U.S. Treasury futures. The 10-year JGB yield is steady and zero percent.

Among commodity prices, Comex gold has dropped 1.0%. WTI oil is 0.4% firmer.

Globally, there have now been 188,321 cases of Covid-19, resulting in 7,499 deaths.

The monthly ZEW Institute surveys of investor expectations and assessments of current conditions in the German and euro area economies produced extremely sobering results, which in combination had only been as poor as this month during the final quarter of 2008. Regarding Germany, investor expectations printed at -49.5 in March after +8.7 in February and +26.7 in January. The perception of current conditions deteriorated from -9.5 in January to -15.7 in February and -43.1 in March. Euroland expectations and current conditions had readings of -49.5 and -48.5 in March and mirror Germany’s abrupt downward trend.

U.S. retail sales in February fell 0.5% on month, trimming their on-year rise to 4.3% from 5.0%. Industrial production rose 0.6% last month but was unchanged from their year-earlier level. Both outcomes but especially retail sales fell short of expectations. Capacity usage rose to a 2-month high in February of 77.0%.

There’s been more central banking developments.

  • The Central Bank of Turkey‘s board, which was to have reviewed policy later this week, announced a larger-than-anticipated 100-basis point reduction of its one-week repo rate. Reductions in January and February had been by 75 and 50 basis points, respectively, and at 9.25%, the benchmark has fallen 14.25 percentage points from the high of 24.0% that prevailed from August 2018 to July 2019. Despite a weaker lira, which is trading around a 17-month low and touched 6.4949 per USD earlier today, officials perceive downside inflation risks to be rising due to oil market developments.
  • Central banks in Jordan and Egypt cut their policy interest rates by 100 and 300 basis points to 2.5% and 9.25%, respectively.
  • Minutes from this month’s board meeting of the Reserve Bank of Australia assert a readiness to ease monetary policy additionally should the coronavirus pandemic’s impact on the economy deepen. The minutes concede that first-quarter GDP growth will be weaker than projected earlier.
  • The National Bank of Poland released a statement introducing new repo operations to ensure ample bank liquidity that may be needed during the coronavirus pandemic.
  • The Swedish Riksbank released a statement increasing planned asset purchases in 2020 by SEK 300 billion and announcing other measures to facilitate the supply of credit.

Monthly British labor statistics reveal a 17.3% on-year rise in jobless insurance claims (most in four months), and associated 0.1 percentage point hike in the unemployment rate to 3.5%, a 0.1 percentage point increase in the ILO-basis jobless rate to 3.9%, greater-than-forecast growth in employment, an acceleration of overall average weekly earnings to 3.1%, but a decelerated growth rate in regular pay (also 3.1% compared to a year earlier).

Hourly labor costs in the euro area last quarter were 2.4% higher than a year earlier, matching the pace in the final quarter of 2018.

January’s rise in Japanese industrial production was revised upward by 0.2 percentage points to 1.0% but still showed a 2.3% drop from a year earlier. Industrial capacity rose 0.1%, while capacity utilization increased 1.1% in January. Compared to January 2019, capacity was 0.4% lower, and capacity usage fell by 3.9%.

Hong Kong’s jobless rate rose to a 109-month high of 3.7% in February.

Consumer confidence in New Zealand dropped 5.2% in the first quarter but remained a tad higher than in the first quarter of 2019.

Australian home prices jumped 3.9% on quarter during 4Q19, the most in three years, and were 2.5% higher than a year earlier.

The Ohio primary was postponed, but Democratic primaries are going ahead today in Florida, Arizona, and Illinois. 

The Richmond Fed manufacturing index and U.S. National Association of Homebuilders’ housing index will be released later today.

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



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