Markets Mar 11

Fiscal support disappointment roils market

Stocks tumble across the board; UK and BoE moves boost the pound

Fiscal support disappointment roils market
Stocks tumble across the board; UK and BoE moves boost the pound

Trade of the Day: Stocks tumble across the board on lack of US fiscal support; UK and BoE moves boost pound.  

Quote of the Day: “Next week, we think Federal Reserve officials could slash their 2020 real US growth forecasts to 1%-1.5% when they release the Summary of Economic Projections (SEP) in conjunction with the March meeting statement. Although the full-year forecast would still be positive, this revised forecast would imply that the US comes close to sliding into a technical recession (two consecutive quarters of negative growth) on a quarterly sequential growth basis,” said Tiffany Wilding, US economist at PIMCO.

Stock of the day: Cathay Pacific rose as much as 5.1% in a weak market after its 2019 net profit beat street estimates, despite the decline.        

Number of the Day: 2%: UBS forecast for China’s growth in Q1. It lowered its year-on-year growth forecast from 6% after the slow pace of work resumption.

Tip of the Day:  “While our concern on M&A overhang and excess capital still hold, we think valuation of OCBC discounts those risks,” said Jefferies analyst Krishna Guha while upgrading OCBC’s shares to a buy recommendation from hold. The price target of SG$11 implies a 15% upside.

Investors dumped risk assets doubting the effectiveness of the response to the fast-spreading virus in the US with the infections count now over 1,000. The sell-off is also in response to the lack of fiscal support measures in the world’s largest economy.

Stock markets sold off across Asia with the Nikkei 225 index tumbling 2.27% and Australia’s S&P ASX 200 benchmark sliding 3.6%. The MSCI Asia-Pacific ex-Japan index fell only 1.12%, amid modest losses for Hong Kong’s Hang Seng index which dipped 0.63% and for China CSI300 that retreated 1.33%.

Wall Street is trading down with the S&P 500 index tumbling 2.8%. The Stoxx Europe 600 is down 2.3%.

There is disappointment after the US Federal Reserve’s emergency rate cuts had little impact on calming markets which is now seeking fiscal support measures. “The impact on economic activity will likely be sharp – and could be deep,” said BlackRock economists in a note referring to the epidemic. “Simply using up the limited monetary policy space remaining – interest rates, forward guidance or even quantitative easing – could quickly put the macro focus on the lack of tools left and thus backfire. The only way to address this is to add further lines of defense and make fiscal policy an explicit part of the crisis response toolkit.”

Bloomberg reports US President Donald Trump has indicated he wants a payroll tax holiday through the November election. Democrats have expressed reluctance about a tax cut to address the economic impact of coronavirus and several Republican senators also held back from endorsing the idea before Trump’s visit to the capitol, it said.

But Britian’s twin-pronged approach to supporting its economy has boosted the pound after the government announced a $39 billion fiscal stimulus plan on the heels of the Bank of England’s 50-basis point cut in the benchmark rate, which now stands at 0.25%.

“Together, these various fiscal and monetary measures amount to a significant stimulus. Even so, it is far from clear if they will be sufficient to prevent the economy dipping into recession over coming months – not least because today’s numbers showed GDP growth grinding to a halt at the start of the year even before the threat from the coronavirus had become apparent,” said Rupert Thompson, chief investment officer at wealth manager Kingswood.