Capital Markets: "Panic Deepens, US Employment Data Means Little"

From Marc to Market:

Overview: The sharp sell-off in US equities and yields yesterday is spurring a mini-meltdown globally today. Many of the Asia Pacific markets, including Japan, Australia, Taiwan, and India, saw more than 2% drops, while most others fell more than 1%. The MSCI Asia Pacific Index snapped the four-day advance had lifted it about 2.8% coming into today. The story is similar in Europe. The Dow Jones Stoxx 600 came into today's session up about 1.3% for the week, but has given that back plus more and is now off about 1% for the week. Even after yesterday's plunge, the S&P 500 is up nearly 2.4% for the week coming into today's session. US shares are trading heavily, and the early indication is for an opening loss of more than 1%. Core bonds are on fire. The US 10-year yield is off 15 bp today to about 76 bp. It has fallen almost 40 bp this week. The 30-year yield is below 1.5%. The closest a G7 country has gotten to match such a move on the US 10-year is Canada, where its benchmark yield is off 26 bp to slip below 85 bp. The German 10-year Bund is within striking distance of its record low set last September near minus 74 bp. Peripheral European bond markets are seen as risk assets, and yields are firmer today, with Italy's benchmark actually now a little higher on the week. The UK's 10-year Gilt currently yields less than 25 bp. The dollar's safe-haven status is being tarnished. It is lower against all the major currencies, and many emerging market currencies, where eastern and central European currencies lead the advancers. The JP Morgan Emerging Market Currency Index is up about 0.2% today, which pares this week's loss to about 0.4%, its third consecutive weekly decline. After advancing 2% yesterday, gold is pushing higher still. It is approaching last week's multiyear high, just shy of $1690. Russia appears to be spurning OPEC's call for steep output cuts, sending oil prices reeling. April WTI is down about almost 4% today near $44 and is now off around 2% for the week after the 16% plunge last week.

Asia Pacific
Weakness in consumption in Japan to start the year lends credence to ideas that the world's third-largest economy is contracting for the second consecutive quarter. Household spending fell 3.9% year-over-year, nearly matching economists' projections, after a 4.8% decline in December. It is the fourth straight decline. Durable goods have been especially hard hit, led by a 10.7% decline in January auto sales after an 11.1% decline in December. Some daily data suggest that after the school closures were announced in late February, there may have been some a surge in necessity purchases. Labor cash earnings rose 1.5% year-over-year after a 0.2% fall in December. Yet, details may not be as favorable as the optics. Base pay did accelerate, but the real juice came from the 10.2% jump in bonuses. Lastly, the January leading economic indicator fell from 91.0 to 90.3, its lowest level since 2009.

Australia's retail sales unexpectedly fell in January by 0.3% after the 0.7% decline at the end of last year. It is the first back-to-back decline in retail sales since July-August 2017. Weak wages, the peak of the wildfires, and high household debt levels are the likely culprits. The central bank cut rates by 25 bp earlier in the week, putting the cash rate at a record-low 50 bp. Another 25 bp rate cut next month is largely discounted....

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