More Macroeconomic Relief around the World

April 22, 2020

The U.S. Congress approved a fourth fiscal package that’s just a tad short of $500 billion.

South Africa unveiled $26 billion of fiscal support, which is equal to about a tenth of GDP.

The Bank of Mexico Governing Board held an unscheduled meeting, cutting its policy rate for the third time this year. Along with reductions of 25 basis points in February and 50 bps in March, today’s 50-basis point decline reduces the rate to 6.0%. Policymakers also put together $31 billion of additional support “to foster an orderly behavior of financial markets, strengthen the credit channels and provide liquidity for the sound development of the financial system.” In a released statement, officials project more than a 5% on-year drop in real GDP during the first half of 2020 and assert that the resulting negative output gap will more than offset inflation caused by peso depreciation, thus maintaining a disinflationary medium-term trend in prices. As a producer and exporter of oil, the sharp drop in its prices and those of other commodities will subject Mexico’s economy to further difficulty.

The Central Bank of Turkey’s one-week repo rate was cut twice as much as anticipated at today’s scheduled review of monetary policy. From 12% at the start of 2020, the rate has been lowered in each month and now becomes 8.75% after today’s full percentage point cut. A released statement observes that the global and Turkish growth outlooks have weakened substantially and depicts mild and low inflation despite lira depreciation. Aside from lending support to economic growth, a looser monetary policy is needed to ensure financial market functionality. That said, the statement pledges to take a cautionary approach to easing in order to safeguard against a rise in inflation.

Markets have been more stable today than on the first two days of this week.

  • The dollar has given back some modest ground, falling overnight by 0.5% against the Australian dollar and sterling, 0.3% relative to the Mexican peso, 0.8% versus the South African rand, 0.7% against the Russian ruble, 0.2% vis-a-vis the Canadian dollar, and 0.1% against the yen, euro, and Swiss franc.
  • Share prices in recovered today by 2.4% in India, 1.5% in Indonesia, 0.6% in China, 0.9% in South Korea, and 0.4% in Hong Kong. In Europe, stock markets are up 1.2% in Italy, 0.6% in Switzerland, 1.4% in the U.K. and 0.5% in France and Spain. Not all markets rose, however. Those in Japan and New Zealand, for instance, fell 0.7% and 1.0%.
  • WTI crude oil dropped 5% and is a tad under $11/barrel. Gold advanced 1.7%.
  • The ten-year German bund yield is up two basis points, and its U.S. and British counterparts have risen by a basis point. The 10-year Japanese JGB yield slipped 2 bps.

British CPI inflation fell to a 3-month low of 1.5% in March, and core consumer price inflation dipped 0.1 percentage point (ppt) to 1.6%. Producer output price inflation slid 0.2 ppts to 0.3%, and producer input prices plunged 3.6% on month and by 2.9% on year. The government’s house price index for February was only a mere 1.1% higher than a year earlier, a 3-month low.

Irish wholesale prices fell 2.2% on month and 4.2% on year in March.

South Korean producer prices dropped 0.8% on month and 0.5% on year in March.

South African CPI inflation slowed a half percentage point to a 3-month low of 4.1% in March.

A 10.2% monthly plunge in energy prices dominated today’s Canadian March CPI report. Overall CPI inflation imploded from 2.2% in February to a 57-month low of 0.9% in March, and there was a record 0.9% seasonally adjusted month-to-month decline in the overall CPI index. Non-energy CPI inflation slid 0.2 percentage points to 1.7%.

April consumer sentiment indices reported for April in Denmark, Turkey and the Netherlands today revealed a huge hit from the Covid-19 pandemic. Danish consumer confidence swung from +0.4 in March to a 136-month low this month of -11.9. Turkish consumer sentiment dropped to a record low in this data series going back to 2004. Dutch consumer confidence slumped 20 index points to a 78-month low of minus 22.

In Italy, one of the first countries whose hospitals were overtaxed by a Covid-19 epidemic, industrial orders slumped 4.4% on month (most in 25 months) and 2.6% on year in February.

A preliminary Australian report on retail sales for March revealed massive hoarding. Sales were 8.2% greater than in February. The Westpac Melbourne index of Australian leading economic indicators sank 0.84% on month in March, the most in 135 months.

Polish retail sales, in contrast, fell 3.3% on month and by 7.1% on year, which was the biggest 12-month rate of decline in 179 months.

The FHFA monthly U.S. house price index increased 0.7% on month and 5.7% on year February.

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

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