EC Fallout Accelerates

Overview: The dramatic response by investors to Covid-19 continues unabated and worse. The slide is accelerating. The S&P 500 posted a 4.4% loss yesterday, its worst session since 2011, and the sell-off is continuing. Many markets in the Asia Pacific, including Japan, China, Korea, Australia, India, Singapore, and Thailand, fell by more than 3%. The Dow Jones Stoxx 600 is off more than 3% near midday in Europe. Yields are tumbling (~5-9 bp today), which pushes the US 10-year yield below 1.2% and the 2-year yield below 1%. Peripheral European bond yields are rising as they are regarded as risk-assets. Italy's 10-year benchmark yield is up 10 bp, accounting for half of this week's increase. The US dollar continues to serve as the fulcrum of the foreign exchange market. The yen, Swiss franc, and euro, the main funding currencies, are extended their gains against the dollar, while the other major currencies, led by the New Zealand dollar (after the country's first virus case has been reported). The JP Morgan Emerging Markets Currency Index has fallen every day this week (~ -1.75%) after four sessions last week(~ -1%). Gold is acting more like an asset than a safe haven. It was nearly flat on the week coming into today, and it is off about $15 today. The slide in oil prices is being extended for the sixth session. Today's 3.6% drop brings the cumulative fall to about 16% as it threatens to push below $45. 

Asia Pacific

While many economists are warning that the Japanese economy may contract this quarter, Tokyo reported stronger than expected January retail sales and industrial production. The 0.6% rise in retail sales compares with a median forecast in the Bloomberg survey for a 0.1% decline. Industrial output rose by 0.8%. The median in the Bloomberg survey was for a 0.2% gain. On the other hand, the employment data disappointed. The January employment rate unexpectedly rose to 2.4% from 2.2%, and the jobs to applicant fell below 1.50 for the first time since May 2017 after a methodological change. 

South Korea rolled out some fiscal measures that include rental subsidies for small businesses and a temporary tax break on auto purchases. An extra budget is being planned. Separately, Korea reported January industrial output fell 1.3%, which was slightly better than expected. The report likely picks up the distortion of the Lunar New Year more than that impact of the virus. Cases in Korea have surpassed 2000. Australia's Prime Minister Morrison indicated that a modest and targeted fiscal stimulus is being put together. 

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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