There was no respite for global equities on Monday, as stocks plunged in Australia and South Korea, while falling a record 13% in India, as the world grapples with the realization that most major economies are recession bound amid partial or complete lockdowns associated with efforts to contain an invisible biological threat.
New Delhi locked down all districts and nonessential businesses in Mumbai are closed through the end of the month. Only groceries and banks are exempt. The rupee fell to a new low.
India hasn’t seen the kind of dramatic rise in cases witnessed in other countries, but it will, according to Dr. T. Jacob John, the former head of the Indian Council for Medical Research’s Centre for Advanced Research in Virology, who said the nation could see cases climb from just 341 at least to levels seen in Iran and Italy, two of COVID-19’s worst hot spots. “The decision to bring life at a standstill is a good decision, but I’m not sure we have bought time for our people”, he told Bloomberg in a phone interview. “We are still two steps behind the virus — ideally, this step should have been taken a week ago”.
Indian equities’ 13% decline on Monday was the largest single-session drop ever witnessed. It was just shy of the 15% decline that would have tripped a second circuit-breaker.
Shares in South Korea and Australia each fell 5% and are down 30%+ over the past two months.
It is, folks, a total, global wipeout.
The kiwi plunged following RBNZ’s announcement of QE, and 10-year yields in New Zealand fell a record 52bps.
Each day, we redefine what counts as “extraordinary” in terms of moves across assets.
“Glancing around money markets, the best summary of the situation would seem to be that stress levels are lower but haven’t vanished completely by any stretch of the imagination”, SocGen’s Kit Juckes said Monday. “The tendency last week was for stress, by which I mostly mean demand for dollars, to grow during the European and US trading sessions [and] it will take a few days of relative calm for the dollar bid to subside”.
“The headlines continue to shock”, Rabobank wrote in a Monday note. “In just over a fortnight or so, the debate among economists has shifted from whether the US will suffer recession to how big the downturn is likely to be”.
Remember, over the weekend investors were forced to choke on a projection from Jim Bullard that the US economy may contract 50% in Q2 with 30% unemployment. Morgan Stanley sees a 30% contraction. For what it’s worth, BofA’s base case for the US economy in Q2 is now for a 25% contraction. So, adjusting my chart for that, we now have these projections:
In India, financial markets will remain open, and some have suggested that could create problems – well, at least for carbon-based lifeforms.
“Though we are able to run the show, it is not business as usual as collecting payment and executing trades is difficult”, Dharmesh Kant, head of retail research at Indianivesh Securities told Bloomberg. “The only people befitting from this are algorithmic traders”.
Well, vol is still ruling: you just finish writing an article, click on the post button and voilà , the markets have already reverted completely (FED again), and will probably revert again by end of trading day.
will revert more than one time by the end of trading day.
The Fed is covering all bets no matter how bad. Markets will go wild over the prospect of a(nother) lost decade, followed by secular stagnation at best. Scary.
The problem with printing USD (Kelton style) is that the government sends money to people who need it to pay bills- the money gets spent – but then that money flows up the chain, so to speak, into the pockets of the “still wealthy” and the money stops circulating. However, better than not printing.
The check and balance on USD printing by USA are FX rates. So as long as other major economies are printing, USA should be able to retain status as “world reserve currency”. USA does not ever want to lose that status ( imho).