Monday began with oil and share prices on the ropes and the safe-haven Japanese yen in the ascendency. Today starts with WTI crude 22% up from yesterday’s lows and the yen down by 1.8% on the day at the back of the field. A correction or a reversal? Time will tell.
The mood during most of Monday was apocalyptic. UK equities opened around 9% below Friday’s closing levels and the same was true, give or take a percentage point, for Europe and the United States. In New York, there was a mandatory 15-minute pause in trading because prices had lost 7%. The S&P500 index eventually fell 7.5%, its biggest daily fall since the financial crisis in 2008.
On Monday evening, Italy’s prime minister extended the travel ban from Lombardy to the whole country when the tragic Covid-19 death toll jumped from 366 to 463. Italy is the worst-affected country after China and cases have been confirmed in all 20 regions. It is not speculative to predict that Italy must already be in recession: the debate is about how deep and extended it will be. The euro lost half a US cent and fell a third of a cent against sterling.
Doing their best
Governments around the world are examining possible measures to ameliorate the effect of Covid-19. Even the US administration is talking about cutting payroll taxes and making assistance available to hourly-paid workers. Other countries display varying levels of urgency.
The European Council will discuss the situation in a telephone conference call today but the idea of state aid to businesses is still a thorny political issue. It is all but certain that the European Central Bank President will have something to say on the matter in her press conference on Thursday.
Ahead of that, Britain’s chancellor will be up tomorrow with his first Budget. Businesses in London and the North West have sent him their wish-lists, but in neither region is there even a nod towards the elephant that now dominates the room. Investors are apparently optimistic that Rishi Sunak has some sort of stimulus at the ready: Sterling had another decent day on Monday and only the safe-haven JPY and CHF have had a better week.
Monday’s ecostats reported fading confidence and falling sales. Today’s will confirm slow growth in the euro zone. Most have little relevance to what is coming down the road for the global economy.
One that does is the Sentix Index of Euroland investor confidence, which was unequivocal. At -17.1, it was close to a seven-year low. Sentix’s analysis was that “coronavirus… is plunging the global economy into recession”. New Zealand manufacturing sales went up by 2.7% in the fourth quarter. The British Retail Consortium described a 0.4% annual decline in sales as “a perfect storm for retail in February”. Inflation in China slowed slightly to 5.2% in February but was kept high by food prices and Covid-19.
NAB’s monthly business survey found confidence fading in Australia “though it appears too early to fully quantify the effect of the Coronavirus with around 50% of firms reporting no impact to date”. Other data today cover Italian industrial output and fourth quarter gross domestic product for the euro zone. Growth of 0.1% is expected for Q419.