Easter Break Over but Covid-19 Pandemic Continues to Dominate Financial Market News

April 14, 2020

Having made the three biggest mistakes in handling the pandemic, the United States has now taken the global lead in both number of cases (30.3% of the worldwide total) and deaths (23,644 or 19.6% of the total). The mistakes were 1) being late to socially distance people, 2) deficient testing to identify asymptomatic carriers of the infection, and 3) securing insufficient protective gear to protect healthcare professionals and the general public. President Trump’s attempts to rebut all three accusations has failed to lift his approval ratings, while his claim of “total authority” over all decisions related to the war against the disease has fanned public anxiety. U.S. equities fell Monday as investors await corporate earnings that will reflect just how damaging America’s lockdown has been to the economy.

Equities in the Pacific Rim on Tuesday mostly rallied, however. Share prices closed up 3.1% in Japan, 2.6% in Singapore, 2.3% in Taiwan, 2.0% in New Zealand, 1.9% in Australia, 1.8% in Indonesia, 1.7% in South Korea, and 1.6% in China. Markets in Continental Europe have gained 1.1% in Germany and 1.4% in Switzerland but are down 0.7% in the U.K. and unchanged in France.

The price of West Texas Intermediate crude oil settled back 2.2% as doubt set in that the weekend production agreement will offset the collapse in global demand. Gold is 0.1% softer.

The dollar is mostly lower. Several currencies are hovering near monthly highs against the dollar. Overnight dollar losses include drops of 1.1% versus sterling, 0.5% relative to the Swiss franc, 0.4% against the euro and yen, 0.3% vis-a-vis the peso and 0.1% against the Australian dollar. The loonie weakened 0.4% overnight.

Ten-year sovereign debt yields in Italy and Spain, where the pandemic’s havoc may be finally cresting, went up 8 and 5 basis points today. Their British and Japanese counterparts are a basis point firmer, but the 10-year U.S. Treasury yield is 2 basis points lower.

The most significant data release this Tuesday has been the Chinese trade surplus of $19.90 billion in March, which marginally exceeded expectations and yielded a first-quarter surplus at $40.77 billion. The encouraging element of the report is that both exports (-6.6% on year) and imports (-0.9%) fell less than forecast.

There were two central bank meetings today, one scheduled and one held a month earlier than planned.

The scheduled monetary policy review at Bank Indonesia held the 7-day repo rate unchanged at 4.5% but injected 118 billion rupiah of extra liquidity into the money market by cutting reserve requirements on most banks by two percentage points. The released statement characterizes inflation as mild, warns of a triple intervention threat, and claims an urgent need to counter the drag on growth from the Covid-19 outbreak. Officials had cut their key interest rate six times since July 2019, most recently at the prior meeting in mid-March, and revealed a policy sensitivity to movement in the rupiah.

Officials at the South African Reserve Bank unanimously authorized the second full percentage point reduction of their key interest rate in the past four weeks. The rate, which had crested at 6.75% after 175 basis points of tightening in 2018, was lowered to 4.25%. The latest 100-basis point reduction was twice as much as analysts were anticipating. A statement released by SARB mentions an IMF projected drop of about 3% in global GDP this year and predicts that South African GDP will tumble 6.1% in 2020 in spite of its policy support. The country’s planned lockdown was recently lengthened to five weeks in all, and its credit rating was recently downgraded by Moody’s. Officials are concerned about the extreme recent volatility of financial markets, and they believe that in spite of the rand’s slide of more than 20% from this year’s high point that inflation will be contained and that risks to the inflation outlook of 3.6% this year are skewed to the downside.

An Asian stock market that did not perform well today was India’s, which dropped 1.5% on Modi’s decision to extend India’s social lockdown to May 3rd.

Danish CPI inflation dropped by half to a 7-month low of 0.4% in March.

Czech consumer prices dipped 0.1% in March, their first monthly decline in a half year, and this trimmed the 12-month rate of increase to a 3-month low of 3.4%.

Finnish CPI inflation of 0.6% last month was its lowest in 25 months.

Greek import prices in February were 1.3% lower than a year earlier.

U.S. import prices fell 2.3% in March, led by a 26.8% monthly plunge in fuel costs. All other import prices were collectively unchanged on month and 0.5% lower on year. Import prices were 4.1% below their March 2019 level, while export prices declined 3.6% in that span.

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

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