Bigger Risk Appetite of Monday Continues

April 7, 2020

Share prices in Asia closed up 9.0% in India, 4.1% in Singapore, 2.1% in China and Hong Kong, 2.0% in Japan and 1.8% in South Korea and Taiwan. Equity markets so far in Europe show additional gains today of 4.3% in Italy, 4.0% in Germany, 3.1% in France, 3.5% in Spain and 3.0% in the U.K. despite Prime Minister Boris Johnson getting moved to a intensive care unit.

10-year sovereign debt yields rose six basis points in the U.S. and Germany and by a basis point in the U.K. and Japan. West Texas Intermediate crude oil advanced 2.1%, and gold is trading 0.7% higher and above the key $1,700 per ounce level.

Risk aversion had buoyed the dollar, so it’s not surprising to see the U.S. currency give back more ground today: 1.7% relative to the Australian dollar, which benefited from no further monetary stimulus announced after today’s central bank meeting. The dollar is also down 0.9% against sterling, 0.8% relative to the euro, 1.0% versus the kiwi, 1.6% vis-a-vis the Mexican peso, 0.5% against the loonie, 0.6% versus the yuan, and 0.2% vis-a-vis the yen.

The worldwide count of coronavirus cases now exceeds 136,000, and 76,315 have died including 10,942 people in the United States.

The Reserve Bank of Australia Board had cut its official cash rate twice last month by 50 basis points in all and proclaimed the 0.25% OCR to be an effective floor. That doesn’t end the scope for more easing, however. Quantitative easing is underway to provide liquidity, encourage bank lending and enforce a 3-year sovereign bond yield target of 0.25%. A statement after today’s meeting warns of difficult economic sledding ahead, concedes that considerable uncertainty surrounds the future of Covid-19 and its impact on the economy and, most significantly, did not unveil additional stimulus. Forward guidance promises to “not increase the cash rate target until progress is being made towards full employment and the Board is confident that inflation will be sustainably within the 2–3 per cent target band.”

Officials at Hungary’s central bank also reviewed monetary policy today. They agreed to make the interest rate corridor more symmetrical by lifting the overnight lending rate to 1.85% but leaving the base rate and overnight deposit rates unchanged at 0.90% and -0.05%, respectively. A number of other monetary policy modifications were also announced “to achieve price stability and to support the Hungarian economic and financial system.”

German industrial production, like factory orders data reported Monday, exceeded street expectations, edging up 0.3% in February on top of January’s 3.2% leap.

Japan released several data: Real household spending unexpectedly rose 0.8% on month due to hoarding behavior in February, and this caused the 12-month rate of decrease to shrink to 0.3% from 3.9% in January and 4.8% in December. Japan’s indices of leading and coincident economic indicators improved to 5- and 4-month highs in February, but the coincident trend was again labeled “worsening” as has been the case since last August’s figures. Labor cash earnings in Japan were 1.0% greater in February than a year earlier and up 0.5% in inflation-adjusted terms. The Japanese Ministry of Finance reported a $7.14 billion increase in international reserves last month as well as a rise of $42.4 billion in the first quarter. Finally, the customs trade deficit in the first 20 days of March was 71% smaller than a year earlier due to a 7.8% plunge in imports.

Australia’s trade surplus narrowed to a 4-month low of A$ 4.361 billion in February on a 5% monthly drop in exports, and the AIG-compiled service sector purchasing managers index for this economy slumped 8.3 points to an 11-year low of 38.7 in March.

Business confidence in New Zealand last quarter dived to -70%, meaning that 70% more of surveyed firms expect a deterioration than those foreseeing improvement.

British labor productivity rose 0.3% both on quarter and on year during the final quarter of 2019, and unit labor costs that period were 0.6% greater than in 3Q and 2.4% higher than a year earlier.

The British Halifax house price index was flat on month in March, yet its 12-month 3.0% rate of increase was 0.2 percentage points higher than in February.

Italian retail sales rose 0.8% on month and 5.7% on year in February.

The Swiss unadjusted jobless rate of 2.9% last month was the highest in 25 months. The adjusted unemployment rate also increased in March to 2.8%.

The French current account deficit in February widened 23% to EUR 3.8 billion, its largest amount since the spring of 2018.

Austrian wholesale price deflation of -4.7% last month was the most negative in 4 years.

Dutch CPI inflation slowed to a 23-month low of 1.4% in March.

Thai CPI inflation of minus 0.5% in March was negative for the first time since mid-2017 and its most negative since end-2015. Filipino inflation slowed 0.1 percentage point to 2.5%.

Mexican CPI inflation fell from a 7-month high of 3.7% in February to a 2-month low of 3.25% last month.

The NFIB index of U.S. small business sentiment sank 8.1 points to a 41-month low in March.

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

Tags: , , ,


Comments are closed.