• Dr Akela

Markets Drop After the Rise

What's New

. US stock futures and many Asian markets dropped today, as worries about the continuing prevalence of the coronavirus outbreak downplayed any measures.

. The MSCI Asian index (ex. Japan) dipped 0.3%, led by a 4.9% fall in Australia while the Nikkei gained 1.6%. US stock futures fell 3% in Asia, a day after the S&P 500 rose 6% and the Dow increased by 1,049 points.

. As analysts note "A rise of 1,000 points in Dow is something you see only during a financial crisis. It is not a good sign. A rise of 100 points would much better for the economy."

. Despite the increase, the S&P500 is still down more than 10% just this week.

. In another bout of desperate measures undertaken by policymakers, the Trump administration unveiled a $1 trillion stimulus package that could deliver $1,000 cheques to Americans within two weeks.

. Still, markets acted smartly and ignored those news, as they correctly understood that you need to be able to go out and spend them first before that money is of any use for the economy.

. European countries also unveiled some fiscal measures. Britain presented a 330 billion pounds rescue package for businesses threatened with collapse while France is to pump 45 billion euros of crisis measures into its economy to help companies and workers.

. Nonetheless, forecasters at banks are projecting a steep economic contraction in at least the second quarter, mostly due to consumption declines.

. As other analysts note, there are a lot of banks and investors that have been badly hit by the economic fallout and still have open positions to sell.

. The market upwards movement did not affect the bond markets, as the 10-year yield got lower, to 1.01%, down from a 1.11% high on Monday. The reason most likely lies in the selling appetite of funds, trying to lock down profits as quantitative easing pushes yields lower.

. The easy gains in the bond market, as a result of QE made the dollar hold its gains against most major currencies, ending the day with a 1.10 rate against the Euro. The increase in the bond yield resulted in higher demand for dollars as the interest rate differential rises.

. The trouble for Australia continues, as the Aussie made its first trip under 60 cents since 2003, having lost more than 15% against the dollar this year.

. Australia and Taiwan are the new countries which offered financial aid to their airlines, after the US, Denmark, and Sweden extended support in the past few days. US airlines are trying to quickly reduce their workforce through early retirement or a 12-month unpaid leave with medical benefits, indicating that they do not expect a quick rebound.

. Data from this morning show that the economic outlook in Europe was bad even before the coronavirus outbreak. In February, car registrations in Italy, Germany, and France showed negative growth rates, with the first two performing worse than the previous month. Car registrations in the UK were also down in February.

Up and Coming

. Later today, core and headline European CPI for February are due, but expected to have remained constant.

. Core and headline CPIs are also due for Canada, and expected to have increased slightly.

. In the US, despite the usual importance of building permits, which are expected to have slightly decreased, attention will turn to crude oil inventories, which are still expected to have remained positive, indicative of weak demand.

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