Overview: Comments beginning with Powell before the weekend, and BOJ and BOE earlier today promising support have saw equity markets briefly stabilize after last week's dramatic moves. The G7 will hold a teleconference this week, but speculation of a coordinated rate move does not seem particularly likely. Most of the large stock markets in the Asia Pacific region rallied, led by a 3%+ advance in China. Japan's indices gained nearly 1%, while Hong Kong and South Korea's markets advanced too. Australia and Taiwan were exceptions and slipped lower. Europe's Dow Jones Stoxx 600 rose about 1.5% in the morning, helped by a rebound in energy and health care, but reversed lower by midday. US shares were also trading firmer but surrendered the initial gains. Bond markets have continued to rally. Core European bond yields are off 4-5 bp, while the yield of the 10-year US Treasury is nearly eight basis points lower near 1.06%. The dollar is weaker against most of the world's currencies today, with sterling the main exception among the majors, and the Indian rupee and Mexican peso the notable exception among emerging market currencies. Gold has rebounded with equities. Its 1.5% gain puts near $1610. Oil prices have also rebounded. Light sweet crude for April delivery is snapping a six-day drop with a 2.3% gain that lifts it toward $46 a barrel.
Asia Pacific
China's February PMI was dreadful. The composite PMI crashed to a record low of 28.9, almost 10-index points below the low from the Great Financial Crisis. The non-manufacturing sector slumped to a record low as well (29.6 vs. 54.1). The manufacturing PMI was already struggling, and in January was at exactly the 50 boom/bust level. It dropped to 35.7 in February. The details were horrific. Production, new orders, and new export orders fell below 30. The Caixin manufacturing PMI fell to 40.3 from 51.1. The data is not that surprising given that good parts of the economy were shutdown. However, there is evidence over the past two weeks that economic activity is taking place, and officials claimed over the weekend that 90% of the state-owned businesses have resumed operations.
The Bank of Japan indicated it will provide loans to support bank lending to businesses that have been hit by the coronavirus. It will offer JPY500 bln (~$6.6 bln) in new JGB repos. The Abe government will tap into the current budget's reserves for JPY270 bln (~$2.5 bln) to help stabilize the markets. Separately, the final manufacturing PMI edged up to 47.8 from the flash reading of 47.6. It was at 48.8 in January and has not been above 50 since last April.
Australia's manufacturing PMI rose to 50.2 from the flash reading of 49.8. It was at 49.6 in January and 49.2 at the end of last year. It is the second consecutive monthly advance, the first since last May and June. The Reserve Bank of Australia meets tomorrow, and the market has fully discounted a 25 bp rate cut.
Beware of news that South Korean exports rose 4.5% in February, the first year-over-year increase in more than a year. There were four more working days this year than in 2019 due to how the Lunar New Year fell. The daily average was off about $1.83 bln or nearly 12%. Exports account for around half of South Korea's GDP. South Korea's manufacturing PMI fell to a four-year low of 48.7 (from 49.8). New stimulus measures are being cobbled together. The extra budget will be unveiled Thursday, and it is expected to be larger than the KRW6.2 trillion (~$5.1 bln) spent on support during the MERS outbreak in 2015....
....MUCH MORE
And on March 1: "March Monthly"
