Flavor Of The Day: Consolidation

Overview: Global equities are struggling after the S&P 500 staged a dramatic reversal yesterday. The early 3.5% gain was completely unwound and closed slightly lower. With few exceptions (e.g., Japan and the Philippines), most equity markets in the Asia Pacific region and Europe are lower. Benchmark 10 year bond yields are consolidating yesterday's rise, but peripheral yields are a bit higher after the Eurogroup of EMU finance ministers were unable to reach an agreement. The US 10-year yield is flat around 72 bp.  The dollar is firm as the risk appetites have waned. The greenback is firmer against all the major currencies, with the Scandis and dollar-bloc currencies the weakest. Among emerging market currencies, the Philippine peso and South African rand are exceptions. Gold is straddling $1650, and oil prices are hugging yesterday's lows.  

Asia Pacific

S&P downgraded the outlook for Australia AAA rating to negative from stable. The larger debt burden was the main factor cited. Separately, but related, parliament approved the A$130 bln (~$80 bln) package that included a wage subsidy of A$1500 every two weeks per employee of struggling businesses to help maintain employment (and income).  

The lockdown of Wuhan, where COVID-19 emerged, was lifted after 76 days. On the other hand, China admitted to 62 new cases of the virus. Some are calling this a second wave, but it is not obvious that it is really separate from the initial contagion, and easing of restrictions simply allowed the virus to renew its growth. Hong Kong also approved an HKD309 bln package and extended the social distancing rules until April 23. Separately, the World Health Organization has become subject to the ire of US President Trump for being slow to respond and for becoming "very China-centric" and appears to withhold funding.  

Japan's machine tools unexpectedly rose in February. The 2.3% gain contrasts with expectations for a 2.9% decline. However, the outlook for the economy remains poor, and one US bank forecasts a 25% contraction here in Q2. It would likely be the third consecutive quarterly decline. The same bank estimates that the JPY108 trillion ($990 bln) stimulus package is really only about JPY14 trillion of new stimulus this year.  

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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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