Historically Steep Equity Rout Enters Fifth Week in a Fresh Air Pocket

March 23, 2020

Stock markets in the Pacific Rim tumbled 13.2% in India, 7.4% in Singapore, 6.4% in New Zealand, 5.6% in Australia, 5.3% in South Korea, 4.9% in Hong Kong and Indonesia, 3.7% in Taiwan, and 3.1% in China. Japan’s Nikkei, which had not traded last Friday, rose 2.0%. However, in Euriope, markets are down 2.5-3.0% in Germany, France, Italy, Spain and Switzerland and by 3.7% in Great Britain.

Investors were dismayed to learn that political differences in the U.S. senate prevented the expected passage of a $2 trillion fiscal stimulus over the weekend. The sticking point involved more direct protection for workers sought by senate Democrats than Republicans are prepared to allow. Meanwhile, the Covid-19 infection now totals 349,179 cases, resulting so far in 15,297 deaths. About 5% of identified actively sick patients are either in serious or critical conditions. Economist forecasts over the weekend depict horrific U.S. conditions in the second quarter with one Fed District president not ruling out 30% unemployment (compared to a peak in the Great Depression of 25%) and a major bank suggesting that real GDP might contract close to 7% on quarter not annualized.

Stock market sell-offs today also fit a recent Monday pattern. The DOW tumbled 3.6% on February 24, 7.8% on March 9, and 12.9% on March 16th. The only Monday rise in the market carnage of the past four weeks was a 5.1% dead-cat bounce on March 2nd. A level in the DJIA to watch for today is 18,917, which is where such closed on Election Day of 2016. President Trump has often pointed to that date and level as the benchmark to judge his stewardship over the economy. Incidentally, the DJIA closed on March 23, 2012 at 13,081, 35.9% higher than its closing level of 9,625 on the day Obama was elected president in 2008.

The continuing stampede out of risky assets today has seen 10-year sovereign debt yields decline and the price of gold rise. 10-year U.S. Treasury futures are down 4 basis points, and its German, Dutch, French, and British counterparts dropped by 6, 5, 5, and 3 basis points. Comex gold has risen 0.9%, whereas WTI crude oil is 1.0% softer and below $22.50 per barrel.

The dollar extended gains against commodity-sensitive and developing economy currencies, with gains of 1.7% versus the peso, 0.6% relative to the Australian dollar, 0.5% versus the Canadian and New Zealand dollars, and 0.3% vis-a-vis the Chinese renminbi. The dollar settled back 0.6% against the yen but shows minimal overnight change versus the euro (-0.2%), Swiss franc (-0.1%) or sterling (unchanged).

Only minor data have been released.

The Swiss current account surplus totaled CHF 25.8 last quarter compared to CHF 14.7 billion a year earlier and at CHF 86 billion in full-2019 was roughly 50% wider than in 2018.

Hungary’s current account deficit of EUR 1.22 billion in 2019 dwarfed the minuscule 2018 deficit of EUR 20 million.

CPI inflation in Singapore fell to a 7-month low of 0.3% last month and was associated with negative core inflation for the first time in 121 months. CPI inflation in Hong Kong, by contrast, accelerated to a 2-month high of 2.2% in February.

Danish consumer confidence fell to a 39-month low in March of 0.4 from 3.3 in February and 6.3 last August. But Turkish consumer confidence improved 0.9 index points to a 2-month high in March of 58.2.

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

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