New Week Brings More Covid-19 Deaths and More Risk Aversion

March 30, 2020

There have now been almost three quarters of a million identified Covid-19 cases around the world, resulting in 35k deaths. About a fifth of the cases have occurred in the United States. In the past 24 hours, Spain reported 537 more deaths to the illness.

A ban on U.S. social gatherings has been extended to at least end-April. Such isolation and the failure of Russian and Saudi Arabian authorities to agree on a pricing policy saw the price of West Texas Intermediate crude fall as low as $19.92 per barrel, while brent slid to its lowest price since 2003.

Share prices in Asia fell Monday by 4.6% in India, 4.5% in Singapore, 2.9% in Indonesia, 1.6% in Japan, 1.3% in Hong Kong and 0.9% in China. Markets in Europe have thus far dropped today by 1.0% or more in the U.K., France, Italy, and Spain but just 0.5% in Germany and 0.4% in Switzerland.

The dollar, as in earlier recent waves of risk aversion, has strengthened especially compared to developing economy currencies, reaching overnight highs of 6.5785 Turkish lire, 80.508 Russian rubles, and 18.0895 South African rand. Compared to Friday closings, the U.S. currency has advanced 1.3% against the Mexican peso, 1.2% relative to the Canadian dollar, 1.0% vis-a-vis the kiwi, 0.9% versus the euro and Australian dollar, 0.7% against the Swiss franc but just 0.4% and 0.2% versus sterling and the yen. Gold slipped 0.7%.

Ten-year sovereign debt yields fell today by five basis points in Germany and the U.K., 3 bps in the United States, France and the Netherlands, and 2 bps in Japan.

The March measure of economic sentiment in Euroland recorded its biggest month-on-month deterioration since 1985, but the drop to 94.5, lowest since 2013, from 103.4 in February was not as far as forecast. Services suffered the heaviest deterioration, a decline to minus 2.2 from plus 11.1. Industrial sentiment printed 4.6 points lower at -10.8. Employment expectations sank to 94.1 from 105.0. Consumer confidence (-11.6 after -6.6) matched the preliminary estimate.

The Swiss KOF economic leaders index fell to a 4-month low in March of 92.9 from 101.8 in February.

Portuguese consumer confidence fell 1.8 index points to a 39-month low in March. Portuguese industrial production fell 2.8% on month in February — most since June — resulting in a 3-month on-year low of 1.0%.

Portuguese business sentiment in March fell to its weakest level in 40 months. Danish business sentiment fell 3 index points to -7 in March, while business sentiment in The Nethlerlands, an energy producer and exporter, dived to a 66-month low of 0.2 from 3.7 the month before.

Spanish retail sales rose 0.3% on month and 1.8% on year in February.

German consumer price inflation fell 0.3 percentage points to a 4-month low in March of 1.4% according to preliminary information.

Spanish CPI inflation this month slowed 0.6 percentage points to a 5-month low of 0.1%.

In the twelve months through February, producer prices fell 0.8% in Greece and Austria and decelerated to 0.9% in Malaysia from 2.8% during the year through January.

British mortgage approvals of 73,546 in February were the most in six years. U.K. M4 money growth from a year earlier rose to a 32-month high of 4.9% in February.

South African on-year M3 money growth accelerated 0.7 percentage points to 7.69% in February, but the 5.09% rise in private credit was only marginally faster than January’s 20-month low.

Saudi Arabian on-year GDP growth decelerated from 2.4% in 2018 to 0.3% in 2019 and -0.3% in the final quarter of last year.

On the central banking front,

The semi-annual monetary policy review by officials at the Monetary Authority of Singapore cut the slope of the Singapore dollar’s allowed trading range to zero percent. This matches the slope allowed from April 2016 through April 2018. The center of the trading band will be is present level, and the width of the band remains unchanged. In Singapore, interest rate policy is subordinated to an exchange rate target. Today’s announced easing was not as extreme as many analysts had been forecasting. An element of caution perhaps reflects to significant degree of uncertainty attached to the depth and duration of Singapore’s recession. Because of the Covid-19 pandemic, authorities are now projecting negative GDP growth in 2020 of between 1% and 4% and a drop in consumer prices of up to 1.0%.

The People’s Bank of China’s seven-day reverse repo rate was cut by 20 basis points to 2.2%. The size of this reduction is greater than two earlier cuts since November.

U.S. pending home sales and the Dallas Fed monthly manufacturing index will be reported later today.

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

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