“Market Wrap…”

Market Wrap

On Monday the main indexes on Wall Street nosedived by 7 percent whilst Dow Jones Industrials crashed 2,000 points, in its biggest one day fall ever, as trading resumed after a 22 percent slump in oil prices.  Furthermore, trading in US stock exchanges was halted immediately after the opening on Monday as the S&P 500 dropped by 7 percent, triggering the automatic 15 minutes cut out in place after the 2008-9 financial outbreak.  US stock futures fell 5 percent to hit their daily lower limit and halting trading.  Meanwhile London’s FTSE 100 shed 8.4 percent after a few minutes after trading opened dropping to its worst since the financial crisis.   As Global share markets tumbled investors rushed to bonds.  The US 10-year Treasury yield fell to as low as 0.318 percent and it was set for the biggest daily fall since 2011 when a sovereign debt crisis hit the markets.  The thirty year treasury yields were last down 30 bps on the day, after hitting a new record low at 0.7 percent as investors were betting that the FED would be forced to cut interest rates by at least 75 basis points at its 18th March meeting despite carrying out an emergency easing.  The two-year US bond yields neared 0 percent while shorter dated yields on British gilts turned negative for the first time.  European stocks slumped on Monday as well with the benchmark STOXX 600 in bear market territory.  Since the rapid spread of the virus that led to a selloff in February, European firms have now lost nearly $3 trillion in value.  Italy’s blue-chip index  .FTMIB dropped 9 percent the most among regional indexes after the government ordered the lockdown across the north including Milan, in order to contain the virus.  Also, on Monday, a key gauge of long-term eurozone inflation expectations, the five-year/five-year inflation forward, fell below 1 percent for the first time ever.  On Tuesday US stock indexes opened more than 2 percent higher as hopes of a coordinated policy to ease a global recession calmed investors. The Dow Jones Industrial Average rose 2.52 percent at the open to 24,453 and the S&P 500 opened higher by 2.44 percent at 2,813.48.  Meanwhile, the NASDAQ Composite gained 3.38 percent at the opening bell to 8,219.76.  On Wednesday with the cut in the interest rates by the Bank of England, yields on longer-dated British government bond yields rose sharply.  On Thursday Wall Street main indexes was halted moments after the opening bell as the S&P 500 slipped 7 percent setting off an automatic 15-minute cutout for the second time this week. Major European bourses fell by double-digit percentages for their biggest daily losses on record, led by 17 percent slide in Italian stocks .FTMIB.  Stimulus efforts from the European Central Bank did little to calm nerves. On Wall Street stocks dropped around 10 percent in their worst day since the 1987 “Black Monday”‘s crash.

Currency Roundup

On Monday the dollar fell 3 percent against the Japanese Yen and commodity linked currencies.  A gauge of volatility of the euro-dollar market (the most traded currency pair) climbed more than 1 percent to its highest. The dollar-yen one-month implied volatility surged to an 11-year high at 8.8 percent as the dollar slid to its weakest since 2016.  As US Treasury yields collapsed, investors dumped dollars.  The dollar fell against the yen to 101.58, the lowest in more than three years.  The euro was last up 1 percent at $1.1408 after touching $1.1495.  Meanwhile the dollar index dropped to its weakest since September 2018 before recovering to trade at 95.181, lower by 0.3 percent.   On Tuesday the Dollar rebounded after huge losses against the yen, the euro and the Swiss franc as investors were more hopeful that global policymakers would introduce stimulus to cushion the economic impact of the coronavirus outbreak. The dollar started to appreciate as US Stock futures rose and bond yields gained after US President Donald Trump said he would hold a news conference on Tuesday about economic measures in relation to the virus.  Against a basket of currencies, the dollar rose 0.2 percent to 95.613.  It also rallied 1.9 percent against the yen to 104.28, higher than the 101.18 low reached on Monday.  The yen was also shaky against some other currencies such as the euro and the Australian dollar after Bank of Japan officials gave indications that they were ready to ramp up stimulus if necessary, before the policy meeting next week.  The euro dropped 0.4 percent versus the dollar to $1.1385.  Against the swiss franc the dollar rose 1.2 percent to 0.9361 on Tuesday, then fell to 0.9299 francs after three days of heavy selling pushed it to its lowest in almost five years.  Meanwhile against the pound, the US currency rose 0.5 percent to $1.3067.  As the Bank of England cut rates, sterling briefly sank against the dollar by almost a cent on the news but recovered its losses and traded at around $1.293, at the level before the BOE cut rates.  Meanwhile the stampede into safe haven has seen the yen appreciate to its strongest against the dollar since 2016.  This erodes the international competitiveness of export-dependent heavyweights and explains why the Bank of Japan chief Haruhiko Kuroda said on Tuesday he would respond to any economic damage that currency might inflict.  The options are however limited given that policy rates are already below zero and the central bank has been buying assets for years.  Japan could intervene in the currency markets by selling yen for dollars.  The Japanese yen strengthened as much as 11 percent against the dollar between 20 February and 9 March as investors sought out safe havens.  On Friday the euro traded at $1.1202, following a 0.72 decline on Thursday in the wake of the ECB decision.  For the week, the common currency was on course for an 0.7 percent decline.

Italy Under Lock Down

Italy’s Prime minister promised “massive shock therapy” to beat the coronavirus on Monday and urged Europe to act decisively after markets dropped and the country sealed off its wealthy industrial north.  In a little more than two weeks, the number of coronavirus in Italy has increased to 7,375 with 366 deaths, the second highest death toll after China, putting the health system under huge strain.

Oil

Crude oil tumbled as much as 33 percent on Monday after Saudi Arabia launched a price war with Russia and opened the taps.  The aggressive turnaround in Saudi Arabia came along after Russia, the world’s second-largest producer, resisted on Friday at output cuts proposed by OPEC producers to stabilise falling prices caused by the economic fallout from the virus.  Oil prices on Tuesday jumped over 8 percent amid economic stimulus to encourage buying and US producers slashed spending in a move that could cut output.  Oil recovered on Tuesday along with equities and other financial markets.  Whilst Brent futures rose 8.3 percent to settle at $37.22 a barrel, US West Texas Intermediate crude rose 10.4 percent to settle at $34.36.  Both benchmarks plunged on Monday to their lowest since February 2016, their biggest one-day percentage declines since 17 Jan, 1991 at the outset of the first Gulf War.

The FED

President Donald Trump imposed restrictions on travel to the US from 26 European countries for a month.  On Thursday the FED moved with offers of $1.5 trillion in short-term loans.  As signs of financial distress emerged across different markets, the FED said it would make the money available in three tranches of $500 billion each and that it would start purchasing a broader range of US Treasury securities than it has been of late.  In this regard, the central bank offered $500 billion in three-month repo operation on Thursday and will offer an additional $500 billion in one-month repo and $500 billion in three-month repo loans on Friday.  This indicates that the FED could deploy some of the crisis tools sooner than planned.  This is the latest in a series of actions aimed at providing liquidity and reassurance as the outbreak grows.

Bank of England

The Bank of England cut interest rates by half a percentage point on Wednesday and announced support for bank lending.  A budget was unveiled which is designed to avert a recession triggered by the coronavirus outbreak.  The unanimous emergency rate cut by the BOE was announced as London Market was opening and before Prime Minister Boris Johnson’s government sets out its spending plans after midday.  Hence, the BOE cut rates from 0.75 percent to 0.25 percent.  The Bank rate is now back to the record low it reached after the 2016’s Brexit referendum.  The BOE said, “Although the magnitude of the economic shock from COVID-19 is highly uncertain, activity is likely to weaken materially in the UK over the coming months” said the BOE. “The Bank will take all further necessary steps to support the UK economy and financial system.”  Whilst no quantitative easing bond purchases were announced, the BOE did lower its countercyclical capital buffer for banks to zero and launched a new scheme to support lending to small business.  These measures aim to keep borrowing flowing.   The BOE said it would allow banks to release a special store of capital, known as the counter-cyclical capital buffer, so they can continue lending to households and businesses during the epidemic.  The BOE further added that, “Temporary but significant disruptions to supply chains and weaker activity could challenge cashflows and increase the demand for short-term credit from households and for working capital from companies.”

European Central Bank

With many people on lockdown, markets at a freefall and companies struggling with disrupted supplies, pressure piled on the Central Bank to roll out on what is left in its policy.  The Bank on Thursday unveiled a stimulus package that provides loans to banks with rates as low as -0.75 percent and increases bond purchases.   A comment on Thursday by the ECB President Christine Lagarde that the central bank was not there to “close spreads” hit the government bond markets especially hard. On Friday, Eurozone government bond yields rose as government debt remained under pressure after Thursday’s selloff, when the ECB disappointed markets with its measures to contain the fallout from the coronavirus.   Italian yields rose to their highest since July, gaining 20 basis points whilst German bond yields also gained.  The gap between Italian and German 10-yr bond yields, effectively the risk premium that the latter pays on its debt, had pushed to its widest since June at around 261 bps on Thursday.  It stood at 250 bps in early Friday trading.   As the ECB is restricted in what more it can do to support the economy after years of extraordinary policy, the pressure is on the eurozone governments to announce more fiscal easing.

Japan

Japan’s economy shrank more than initially estimated in the fourth quarter by the most since 2014 sales tax hike.  This has increased economic fears at a time when the impact of coronavirus outbreak is increasing recession risks.  In October sales tax hike has increased from 10 percent to 8 percent.  The unpromising data renewed pressure on the government and central bank to engage in stronger fiscal and monetary support.  The world’s third-largest economy shrank an annualised 7.1 percent in the three months through December, revised data showed on Monday.  The figure represents the steepest decline since April-June 2014, when a sales tax hike to 8 percent from 5 percent in April of that year pushing the economy into a recession.  Meanwhile, the deeper contraction and the coronavirus impact is boosting the fears of another decline in the first quarter of this year to mark two consecutive recessions which represent a recession.

Malta:  Inbound Tourism

Total inbound visitors for January 2020 were estimated at 150,131 an increase of 17.5 percent when compared to the corresponding month in 2019.  During the month under review, a total of 131,865 inbound tourist trips were undertaken for holiday purposes while a further 13,841 were made for business purposes.  Total tourist expenditure was estimated at EUR 94.2 million, an increase of 11.2 percent over the corresponding month in 2019.

 

 

Antonella Mercieca

Client Relationship Manager

Source:

Reuters, https://nso.gov.mt

Date:

March 13th, 2020


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