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Japan PMI composite dropped to 35.8, aggressive downturn led primarily by service

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    Japan PMI Manufacturing dropped to 44.8 in March, down fro 47.8. That’s the lowest level since April 2019. PMI Services dropped sharply to 32.7, down from 46.8. That’s the lowest level since the start of the survey in September 2007. PMI Composite dropped to 35.8, down from 47.0, lowest since April 2011.

    Joe Hayes, Economist at IHS Markit said: ” Latest PMI data show that the Japanese economy slipped into an aggressive downturn in March that was primarily led by the service sector… In contrast to other parts of Asia, the US and Europe, Japan (at the time of writing) has not issued a public lockdown, while there are reports that footfall in places such as Tokyo remains high. If the outbreak were to accelerate, the economic damage could far exceed what we’ve seen so far, particularly if The Olympic Games are postponed”.

    Full release here.

    Japan to strengthen monitoring of fraudulent market activities

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      Japan Finance Minister Taro Aso warned that the Financial Services Agency will strengthen monitoring against improper trading activity at the current time of heightened market volatility. In particular, the FSA will with with securities watchdog and stock exchanges to monitor fraudulent activities in market operations.

      He also made a rare comment regarding Dollar’s strength. Aso said, “Everyone is buying dollars. That’s leading to declines in other currencies. Stocks and bond prices are both falling, which is something that has not happened before.” “It’s probably investors’ anxiety” over the coronavirus pandemic, he added.

      Fed removes QE limits, launches new program to support businesses

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        Fed announced a new round of aggressive measures to support the US economy against coronavirus pandemic impacts. In particular, Fed will purchase bonds to keep borrowing costs low without specifying a limit. There will also be programs to ensure credit flows into businesses and governments.

        Fed said it will buy treasuries and agency mortgage-backed securities “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.” Last week, Fed said it would by at least USD 500B of treasuries and USD 200B of agency MBS.

        Additionally, Fed will support “the flow of credit to employers, consumers and businesses by establishing new programs that, taken together, will provide up to $300 billion in new financing.”

        Full statement here.

        Bundesbank: Slide into a pronounced recession could not be prevented

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          Bundesbank said in its monthly report that the country is “facing previously unknown challenges as a result of the rapidly spreading coronavirus pandemic”. On the economy’s side, the “slide into a pronounced recession could not be prevented”. And, “economy recovery would only start when than pandemic risk was effectively contained”.

          The coronavirus pandemic would affect the economy through various channels. Firstly, domestic service sectors will be most affected. Hospitality and entertainment sectors, trade fair and aviation companies are likely to “suffer particularly sharply from falling demand and precautionary closings”.

          Other companies will also be affected by “potential loss of work and sales as a result of protective and precautionary measures”. Contagion effect from abroad would affect export and industry. Supply bottlenecks for important primary products threatened production bottlenecks. “All of these impairments listed can trigger negative confidence and second-round effects in Germany,” said the Bundesbank.

          Full release here.

          Ifo: Coronavirus to cost Germany EUR 255B to EUR 728B

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            Ifo institute warned that the coronavirus pandemic could cost Germany’s economy between EUR 255B and EUR 729B. President Clemens Fuest said such costs would “exceed everything known in Germany from economic crises or natural disasters in recent decades. ” And, “depending on the scenario, the economy shrinks by 7.2 to 20.6 percent points”.

            “If the economy comes to a standstill for two months, depending on the scenario, costs come to between 255 and 495 billion euros. Economic output then shrinks by 7.2 to 11.2 percentage points a year, “says Fuest.

            In the best scenario, it is assumed that economic output will decline to 59.6 percent for two months, recover to 79.8 percent in the third month and finally reach 100 percent in the fourth month.

            “With three months of partial closure, the costs already reach 354 to 729 billion euros, which is a 10.0 to 20.6 percentage point loss in growth,” says Fuest.

            Full release here.

            Fed Bullard: Unemployment rate might jump to 30% in Q2 due to coronavirus shutdown

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              St Louis Fed President James Bullard warned that US unemployment could surge to 30% in Q2 because of coronavirus shutdown. The number, if realized, would be three times more than the peak in 2007-2009 recession. GDP could contract an unprecedented -50%, with a hit of around USD 2.5T.

              But he also noted that this is a “planned, organized partial shutdown” of the economy in Q2. He added, “We are not trying to move production and income up in the second quarter. We are trying to keep it out of the second quarter.” And, “You want capital to just sit in place. Switch off the factory … Then switch it back on.”

              Bullard expected activity to rebound quickly ahead. “I would see the third quarter as a transitional quarter,” with the following six months “quite robust” as Americans ramp up consumerism. “Those quarters might be boom quarters,” he said.

              ECB Schnabel: None of our tools used to its full extent

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                ECB Executive Board member Isabel Schnabel told German newspaper Frankfurter Allgemeine Sonntagszeitung that the central still have all of its tools available to mitigate the crisis. She said, “the ECB is in the comfortable position of having a large set of tools, none of which has been used to its full extent”

                “We have the key interest rates, we have instruments for providing liquidity to the banks, and we have the asset purchase programs,” Schnabel added. “The claim that central banks have run out of tools simply doesn’t match up to the facts.”

                Though, she also noted that monetary policy alone was insufficient. “There are proposals to use the European Stability Mechanism or the European Investment Bank. The issuance of one-off ‘corona bonds’ would also be conceivable. It is up to politicians to decide,” Schnabel said.

                Separately, Vice President Luis de Guindos told Spanish TV La Sexta on Sunday that the impact of coronavirus pandemic ” will be very hard and will place Europe into a recession.” The poor Q1 will “drag the overall European economy into negative growth rates in the year”. Though, he’s optimistic that “we will see positive growth rates for Europe” in Q2. He also urge EU to issue pan-Europe bonds to help counter the economic impacts.

                South Korea reports lowest new coronavirus cases since peak

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                  A piece of good news regarding the coronavirus pandemic is that South Korea on Monday reported its lowest number of new cases since the peak on February 29. The KCDC said there were only 64 new confirmed cases, taking the tally to 8961. Death toll rose by 1 to 110. The number of deaths stay at a relatively low level comparing to countries like Italy and Iran. It’s also the 12th straight days of new cases at around 100 or less, much better than the peak of 909. Also, 257 patients were released from hospital.

                  Separately, Vice Finance Minister Kim Yong-beom said a new task force with be set up within the ministry. Special meetings will be held everyday to assess the situation and decide if more policy actions are needed to stabilize the financial markets. The government pledged to make all efforts to prevent extreme market volatility to turn into credit crunch.

                  Australia enters lockdown as coronavirus cases surge

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                    Australian government is starting lockdown measures as coronavirus spread accelerates in the country. Non-essential services, including indoor sporting venues, pubs, cinemas, bars and places of worship will be closed from midday Monday.  A total of 1642 confirmed cases are reported in the country now, with 669 in New South Wales, 355 in Victoria and 319 in Queensland, 140 in Western Australia, and 100 in Southern Australia. Death tolls remain low at 7.

                    Prime Minister Scott Morrison warned this is the “toughest year of our lives” and the lock down could last six months. Several Australian states have take even stronger measures. Western Australia and South Australia announcing tighter border restrictions at the weekend. Victoria closes all schools starts from Tuesday.

                    Separately, the Australian Prudential Regulation Authority (APRA), banking watchdog, said banks must account for possible loss form loan repayment holidays they offered to those affected by the coronavirus outbreak. And, banks must publicly disclose the volume of such loans. Last week, banks announced coronavirus support packages that provide borrowers with an option to defer repayment for up to six months. These packages target mainly small businesses and home loan customers affected by the coronavirus outbreak.

                    RBNZ starts NSD 30B QE, financial taps turned on, country goes into self-isolation

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                      RBNZ announced today to launch a NZD 30B Large Scale Asset Purchase (LASP) program of government bonds. The purchases will be “across a range of maturities” in the secondary market over the next 12 months. It aims to “provide further support to the economy, build confidence, and keep interest rates on government bonds low.” RBNZ will monitor the effectiveness and “make adjustments and additions” if needed.

                      Over the weekend, Governor Adrian Orr said in an article that “the evolving coronavirus outbreak has unsettled communities around the world, creating uncertainty about the future.” “New Zealand is no exception” but “we start in the best possible relative position”. The central bank already cut the Official Cash Rate form 1.00% to 0.25% and remains “committed to keep it there for at least the next year”. He added, “we are ready to act further, with more firepower in reserve to keep the financial taps turned on.”

                      Separately, Prime Minister Jacinda Ardern announced today that the country is “now preparing to go into self isolation”. All non-essential services, schools and offices will be shut over the next 48 hours. Supermarkets and pharmacies will remain open.

                      Canada retail sales rose 0.4% in Jan, coronavirus impact to come later

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                        ActionForex.com
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                        Canada retail sales rose 0.4% to CAD 5.2B in January, slightly above expectation of 0.3% mom. Ex-auto sales, however, dropped -0.1% mom, versus expectation of 0.2% mom. Sales were up in only 4 of 11 subsectors, representing 48% of retail trade.

                        Statistics Canada also noted: “While the impacts of the coronavirus on the retail trade sector will be more noticeable in subsequent months, respondent comments for February note that business activities have been impacted.”

                        Full release here.

                        ECB policymakers push common fiscal responses from governments

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                          ECB Governing Council Member Olli Rehn said that Eurozone is now at a “critical juncture” with the coronavirus pandemic. It is “essential for Eurozone governments to “get their acts together and agree to a coordinated European fiscal response.” “There’s a saying: never waste a crisis. Therefore it’s important that euro area governments agree at this critical moment on some kind of a safe asset that could provide sturdy support for financing,” he added.

                          Another Governing Council member Pablo Hernandez de Cos also called for a common fiscal response using the European Stability Mechanism, the European Investment Bank, the EU’s common budget or other “risk sharing” tools. He urged, “greater ambition and coordination are not just an option; they are a necessity.”

                          Italy pushes new EU bonds to fight against coronavirus economic impacts

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                            Italian Economy Minister Roberto Gualtieri urges EU to issue new bonds to help the member states fighting impact of the coronavirus. He told newspaper Il Corriere della Sera, “we should foresee the issue of European securities that can be used by each country under the same conditions and must be related to the fight against coronavirus and its economic consequences.”

                            “We are facing a symmetrical shock that affects everyone and therefore we need to use the tools we have in an innovative way,” he added.

                            While he priced ECB’s move, Gualtieri also emphasized that monetary policy alone is not enough. “We must have the courage to put in place a common and coordinated budgetary policy capable of supporting the effort of our health systems,” he said.

                            RBNZ announces measures for to support financial system functioning

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                              RBNZ announces a package of measures to support financial system functioning during the coronavirus pandemic. A Term Auction Facility is set up to give banks access to term funding, with collateralized loans available out to a term of 12 months. That should alleviate pressures in the funding markets. Other measures include funding in the fx swap markets, re-establishment of a USD swap line, supporting liquidity in the government market, and measures to have a greater control over short-term interest rates.

                              “The measures we are implementing today provide additional support to domestic financial markets. We will ensure our operations make financial markets operate smoothly,” Assistant Governor Christian Hawkesby said. “We are working in tandem with the banks, the wider financial market community, and the Government.”

                              Fed Daly: Our tools are starting to work in the market

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                                San Francisco Fed President Mary Daly said in an interview that it’s “absolutely appropriate” to have Fed working with fiscal agents to help small businesses and households to “weather this near term shutdown” due to coronavirus. The fiscal stimulus from Congress and the response moves by Fed this week are “exactly what we need to do to offset some of the near-term disruption”.

                                She noted that Fed’s tools are “starting the work in the market we care about”. “It’s encouraging to see that there’s more borrowing at the discount window; it’s encouraging to see that some of the volatility in markets has settled down,” Daly said.

                                BoE cut rate to 0.10%, expand asset purchase by GBP 200B

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                                  ActionForex.com
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                                  After a special meeting, BoE announces to cut Bank rate by -15bps to 0.10%. Also, Asset purchase target is raised by GBP 200B to GBP 645B. BoE will also enlarge the TFSME schedule  financed by the issuance of central bank reserves.

                                  BoE said in the statement: “Over recent days, and in common with a number of other advanced economy bond markets, conditions in the UK gilt market have deteriorated as investors have sought shorter-dated instruments that are closer substitutes for highly liquid central bank reserves.  As a consequence, UK and global financial conditions have tightened.”

                                  Full statement here.

                                  US initial jobless claims jumped 70k to 281k, clearly attributable to coronavirus impacts

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                                    US initial jobless claims rose 70k to 281k in the week ending March 14, well above expectation of 220k. It was also the highest reading since September 2017. Four-week moving average of initial claims rose 16.5k to 232.25. Continuing claims rose 2k to 1.701m in the week ending March 7. Four-week moving average of continuing claims dropped -7k to 1.703m.

                                    DOL said, “During the week ending March 14, the increase in initial claims are clearly attributable to impacts from the COVID-19 virus. A number of states specifically cited COVID-19 related layoffs, while many states reported increased layoffs in service related industries broadly and in the accommodation and food services industries specifically, as well as in the transportation and warehousing industry, whether COVID-19 was identified directly or not.”

                                    Full release here.

                                    Ifo: German economy could shrank -1.5% this year in better case scenario

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                                      ActionForex.com
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                                      Ifo institute said in its spring forecast that the global economy is “collapsing” as a result of coronavirus pandemic. Global GDP would grow only 0.1% this year, comparing with 2.6% last year. World trade would see a decline of -1.7%. There are also “considerable” downside risks in the forecast.

                                      German economy could shrink by -1.5% this year. That could reduce growth rate by almost -3%, comparing with a situation without the outbreak. The full effect of the coronavirus crisis will be seen in Q2, leading to -4.5% contraction in GDP. By first half of 2021, production of goods and services should then “gradually return to a normal level”. In a second scenario, which includes bigger production restrictions, economic output will shrink by -6%

                                      SNB Jordan: Key coronavirus measures are medical and fiscal, not monetary policy

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                                        SNB Chairman Thomas Jordan emphasized today key coronavirus measures “do not come from central banks”. Instead, they come from “medical measures and also from the fiscal side”.

                                        For the central bank, “we have to provide the financial system with enough liquidity to ensure the credit flow to the economy does not dry up…so firms can survive this very difficult situation.”

                                        SNB stands pat at -0.75%, expects negative inflation and growth this year

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                                          ActionForex.com
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                                          SNB kept sign deposit rate unchanged at -0.75% today. It noted that coronavirus is posing “exceptionally large challengers” for Switzerland, and the expansionary monetary policy is “more necessary than ever” for ensuring appropriate monetary conditions. The central bank is “intervening more strong” in the FX markets to stabilize the situation. Both negative interest and interventions are “necessary to reduce the attractiveness of Swiss franc investments”.

                                          Additionally, SNB is raising the exemption threshold as of April 2020 to reduce the negative interest burden on the banking system. The threshold factors will increase from 25 to 30. It’s also examining whether a “relaxation of countercyclical buffer” would be possible.

                                          New conditional inflation forecast is lowered primarily due to “lower oil prices, significantly weaker growth prospects and stronger Swiss franc”. Inflation is expected to be in slightly negative territory at -0.3% this year, turned slightly positive to 0.3% in 2021, then rise to 0.7% in 2022. Growth is “likely to be negative” for 2020 as a whole.

                                          Full release here.

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