Daily Brief

Daily Brief

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Inspiration needed

Not spreading panic

US Federal Reserve leaders were out and about on Tuesday, attempting to downplay fears about the impact of coronavirus. Investors nevertheless expect the Fed to cut its funds rate two or three times this year, whether or not lower rates are the best solution to a supply-led economic downturn.

Fed vice chairman Richard Clarida was emollient in his address to the US National Association for Business Economics, saying “monetary policy is in a good place and should continue to support sustained growth”. The impact of coronavirus on the US economy would need to be “material and persistent” for the Fed to change its outlook. Market pricing shows that investors do not entirely believe him. They think the Fed will do what it has always done in the post-financial-crisis era when equity prices are under pressure: cut interest rates.

Regardless of the forced optimism of US central bankers, the US Centers for Disease Control and Prevention says it is “not a question of if coronavirus will spread, but when”. The World Health Organisation warned more generally that countries should be prepared for coronavirus to be “literally knocking at the door”. In Hong Kong, where the economic issues are admittedly broader, the government has announced stimulus that will hand out US$1,200 of “helicopter money” to all adult residents.

 

Further fluster

Financial markets continued in the same nervous vein as the previous two days, with equity prices and bond yields falling as investors offloaded risk in favour of safety. Oil tested 13-month lows. The flight to safety was not coordinated though: there was no upward pressure on gold and sterling outperformed the Japanese yen and Swiss franc.

Tuesday’s economic data were of little use. The CBIs’ Distributive Trends Survey found that retail sales in February were “broadly flat for the fourth consecutive month” and “poor for the time of year”. Overnight, the BRC’s Shop Price Index showed a ninth successive monthly decline, which the consortium believes “customers will welcome”.

Across the Pond, the Federal Housing Finance Agency and Standard & Poor’s found house prices rising in the year to December. The FHFA put the annual increase at 5.1%, S&P at 2.9%. The Richmond Fed’s manufacturing index disappointed with an unexpected 22-point decline to -2 while the Conference Board reported a slight increase in consumer confidence.

 

Not a lot

The world’s statisticians seem to have bundled up their end-of month data for mass release on Thursday and Friday. Today, as on the previous two days, there is little meat on very few statistical bones.

Construction output in Australia fell 3% in the fourth quarter of 2019. Norwegian unemployment edged down from 4% to 3.9%. French consumer confidence was steady at 104.

This morning Italy reports on its balance of trade and ZEW publishes its survey of Swiss business expectations. The afternoon’s data are limited to US new home sales. Tonight brings NZ’s balance of trade and business confidence as well as Australian private capital expenditure.

GBP: Tuesday’s unexpected leader

GBP: Tuesday’s unexpected leader

USD: Fed not worried yet

USD: Fed not worried yet

HKD: Helicopter money announced

HKD: Helicopter money announced

JPY: Safe-haven status re-established

JPY: Safe-haven status re-established

AUD: Joint laggard with NZD

AUD: Joint laggard with NZD

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