Coronavirus fear continues to intensify
Fears over the economic impact of the coronavirus (covid-19) outbreak continued to increase with a major escalation in the US and further increase in European cases while the overall global spread also continued to widen with further travel and movement restrictions put in place.
The number of new reported cases in China remained low, but the government closed its borders to non-essential travel in order to curb imported cases.
The global number of cases increased to over 675,000 with the highest number in the US at over 120,000 with the highest death toll in Italy at over 10,000.
Governments continue to take action
Global governments have continued to introduce support measures in an attempt to ease the disastrous economic impacts of lock-down measures. The US approved a $2.2trn support package including loans and direct payments to US citizens with all major countries announcing further packages to ease the impact of massive job losses.
Dollar liquidity improves……
The very aggressive action by the US Federal Reserve to support global liquidity continued during the week. The measures overall had greater impact that had been seen the previous week. There was a clear drop in funding stresses across global markets as the flood of liquidity had an impact. Global equity markets were able to make strong net gains as the pressure to raise cash declined slightly.
…….US currency declines sharply
The very sharp increase in global dollar liquidity also had the impact of undermining the US dollar. After strong gains the previous week, the US currency declined sharply with a weekly decline of close to 4% as other major currencies recovered ground.
Markets had been expecting a sharp increase in jobless claims for the latest week as lay-offs increased, but the data still came as a shock with an increase to 3.28mn in the latest week from 282,000 previously. This was the highest figure on record and substantially above the previous all-time high of 685,000 in 1982.
Consumer confidence declined sharply in the final March figure while business confidence weakened sharply, especially outside the manufacturing sector.
Federal Reserve Chair Powell reiterated that the central bank could take more action if needed.
UK business confidence data recorded a sharp decline for March, especially in the services sector. CPI inflation declined to 1.7% from 1.8% and February retail sales declined slightly.
The CBI indicated a sharp decline in manufacturing confidence while retail sales declined with huge losses outside the food sector.
The Bank of England made no changes to monetary policy at the latest policy meeting with interest rates held at the record low of 0.1%. It did, however, reiterate that it was prepared to make further measures if necessary.
Fitch downgraded the UK credit rating due to concerns that the coronavirus outbreak will cause major deterioration in the UK budget position.
Sterling recovered ground after very sharp losses the previous week with the strongest weekly advance against the dollar for over 10 years as it moved above 1.2400.
There was a sharp decline in the latest business confidence data with notable losses in the services sector. Euro-zone finance ministers failed to agree the issuance of special bonds to help support he regional economy.
The Euro still made sharp net gains during the week with EUR/USD back above 1.1000.
The Bank of Canada announced a further cut in interest rates to 0.25% from 0.75%, the third cut this month and also introduced a bond-buying programme.
Commodity currencies made net gains as the US currency declined.