19.03.2020 – Daily Report. The European monetary watchdogs announce the mega-support and fire the bazooka – they want to buy bonds worth 750 billion dollars. But instead of a boom, the stock exchange is just a whorehouse. Because who benefits from that? Ailing banks and overindebted states. It is questionable whether much of the money will reach the real economy. The DAX is only rising slightly.
Frankfurt Stock Exchange in the wake of deflation
Investors in Frankfurt entered the market only hesitantly towards Thursday afternoon: The DAX climbed 0.6 percent to 8,495 points. A meagre plus in comparison to the heavy losses of the previous days. The US futures fell about 0.2 percent.
On the trading floor, the insight spread that the world is facing mega-deflation. With a
Death spiral of falling prices and declining investment. In addition, there is currently massive de-leveraging in the financial industry. In other words, everything has to go – it’s all about survival. A sign of this is the strength of the dollar – it has risen against most currencies and most recently stood at 1.0856 against the euro.
750 billion euros from the ECB
In Europe, all those investors who had bought government bonds can be happy – the European Central Bank will buy them from them. The ECB, for example, intends to fight Corona with an emergency programme worth 750 billion euros by the end of 2020. Overall, the volume of all purchases, together with other current and planned purchases of government bonds, corporate bonds and other assets, will thus rise to 1.1 trillion euros this year. The question is how much of this money will end up in consumers’ pockets. Even if commercial and state banks were to grant more loans – who will take them up when demand slumps?
Fin de regime – they have not understood anything
This was also the line of argument of the always biting analyst Michael Every from Rabobank. With a view to the various, hardly manageable fiscal and economic stimulus programs, he stated yesterday: “Too much – and still not enough”. And stated that we are dealing with a fin-de-regime, as the end of the regime. Literally: “Things have already irrevocably changed and whipsaw market action reflects that this is the case”. In the USA, the Virus Fiscal Package has swollen from 500 billion dollars to 1.2 trillion dollars – thus to 5.6 percent of the US gross domestic product.
But he was critical of loans – loans would hardly help in a longer crisis: “However, when you have a collapse in demand and a supply shock, is your first response to want to borrow more to tide you over? Perhaps for a month or two. Yet if this is going to last 12-18 months, as some health experts are suggesting, then surely the temptation is just to shut down and restart a new business when we are virus-free? Or, take the loan, pocket it, and then close down?” So: Take the money, let the company fall over and run. By the way, the Rabobank expert was positive on topics such as basic income and helicopter money.
Economic indicator copper
On the subject of deflation, CNBC just referred to the economic indicator copper. The red metal is used, for example, in construction, household appliances or cars for cables. The price has just fallen to its lowest level since January 2016. Thus, the three-month futures on the London Metal Exchange (LME) plummeted to a low of $4,371 per tonne. In mid-January, the price was still at 6,340 dollars. This does not bode well for the global economy in the next three months.
Correction in Asia continues
Asian investors held back on Thursday. The Nikkei lost around 1 per cent to 16,553 points. Support came from the Bank of Japan, which offered banks an additional 4 trillion yen, or 34 billion euros in liquidity, and expanded its bond purchase program by 1.3 trillion yen. In China, the CSI-300 lost 1.3 percent to 3,589 jobs.
Heavy losses again in New York
Meanwhile, the cops yesterday experienced another bloodbath on the US stock markets. Due to the rapid sales, stock exchange trading was temporarily suspended. At times, the Dow Jones Industrial rushed almost 11 percent below 19,000 points – its lowest level since November 2016 – and at the closing bell, the Dow was still 6.3 percent lower at 19,898 points. The S&P 500 fell by 5.2 percent to 2,398 points. And the Nasdaq Composite plunged by 4.7 percent to 6,989 points. Meanwhile, US President Donald Trump wants to resort to a law from wartime, the Defense Production Act, in case of emergency in the Corona crisis.
Dates of the day
The diary has some interesting events on Thursday, you can find the overview as always here: Market Mover
At 1:30pm the following data is published:
Weekly US initial applications for unemployment benefit
US current account
Philadelphia Fed Index
And at 3:00pm the US leading indicator for February will follow.
The Bernstein-Bank wishes successful trades!
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