Some Good News Allows Riskier Assets to End Week on Rising Note

April 17, 2020

Released Chinese data were not as bad as feared. Although the first shrinkage of real GDP since 1976 was confirmed, the on-year decline of 6.8% last quarter was close to expectations, and officials asserted that the Covid-19 shock will not impair the continuing impressive long-term expansion of economic activity. Other released figures revealed a much smaller-than-expected 1.1% on-year drop of industrial production in March, a smaller 15.8% decline in retail sales after -20.5% recorded in January-February, and a diminished contraction of fixed asset investment in March that still left the first-quarter level 16.1% lower than a year earlier. Also, China’s jobless rate fell back 0.3 percentage points to 5.9% last month, and the decline in property investment eased back to 7.7% in the first quarter as a whole versus an on-year drop of 16.3% for just January-February.

Regarding the race to treat Covid-19, there was an encouraging report that an anti-viral drug developed by Gilead Science has shown some impressive early trial results. The global total of coronavirus cases and deaths are now at 2,197,968 and 147,598.

A potential constitutional showdown between President Trump and the states has meanwhile simmered down. Having previously asserted complete authority over matters regarding reopening U.S. businesses, the President’s plan in fact cedes that role to the governors. It suggests that many activities ought to be able to resume May 1, but the guidelines will not be binding. The U.S. continues to top the national Covid-19 breakdown with 30.8% of the cases and 23.5% of the deaths. China’s death total was revised upward nearly 1,300 to 4,637 due to an re-estimation of what happened some time ago.

Central banks continue to counter the economic impact of the pandemic and closed activities. Today, the Reserve Bank of India, which on March 27 had cut the repo rate by 75 basis points and the reverse repo by 90 bps, cut the reverse repo by an additional 25 basis points to 3.75%. This measure was done to encourage banks to transform injections of liquidity into meeting the loan demand of businesses and consumers.

Elsewhere, the Central Bank of Mauritius cut its repo rate by 100 basis points to 1.85%. This was the second rate cut of 2020, following up on a 50-basis point cut on March 10.

Stock markets in the Pacific Rim today rose 4.8% in the Philippines, 3.4% in Indonesia, 3.2% in Japan, 3.1% in South Korea, 3.0% in New Zealand, 2.8% in India, 2.1% in Taiwan, 1.6% in Hong Kong, and 1.3% in Australia. Markets in Europe so far have risen at least 3.0% in Germany, France, Italy, Spain and the U.K., and the DJIA opened more than 2.0% higher.

Ten-year sovereign debt yields are respectively two and one basis points in the United States and Japan. WTI oil plunged 7.2% overnight.

The price of gold fell 1.6%, and the dollar fell overnight by 1.8% against the peso, 1.1% versus the kiwi, 0.8% relative to the Australian dollar, 0.4% versus the loonie, 0.3% against sterling, and 0.1% relative to the yen, euro, Swiss franc, and Chinese yuan.

Japanese industrial production in February got revised from an originally reported 0.4% increase to a monthly drop of 0.3%, resulting in a 5.7% on-year decline. The 12-month change has been negative since October. Capacity utilization slumped 1.8% on month and 7.3% compared to the level in February 2019. Finally, Japan’s tertiary index of monthly service-sector activity fell 0.5% on month and 0.9% on year in February.

European officials confirmed that CPI inflation in the euro area slowed a half percentage point in March to a 5-month low of 0.7%. Core inflation slid 0.2 percentage points to 1.0%, and energy prices were 4.5% lower than a year earlier.

Construction output in Euroland slumped 1.5% on month to post a year-on-year decline of 0.9% in February.

New car sales in the 25-nation European Union tumbled 55.1% on year in March, while new car sales in Great Britain that month were 44.4% lower than a year before.

New Zealand’s manufacturing purchasing managers index rose by a greater-than-forecast 3.4 index points to a reading of 53.2 in February.

South Korean unemployment of 3.8% in March was a half-percentage point higher than in February but lower than analysts were anticipating.

Austrian CPI inflation slowed 0.6 percentage points to a 3-month low of 1.6% in March, and the 12-month 4.5% rate of decline that month in Danish producer prices was the greatest drop in 45 months.

Italy’s trade surplus of EUR 6.085 billion in February was the at a 4-month high and 88% larger than the surplus in February 2019.

IMF/World Bank semi-annual meetings began today and run through Sunday. They are being held virtually rather than in Washington D.C.

The Conference Board will report the monthly U.S. index of leading economic indicators shortly.

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




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