Confirmed cases of coronavirus outside China have continued to rise following the surge over the weekend. Monday saw Italy record 77 more cases to have 229 infections and 7 deaths, a far cry from Friday when only 3 cases had been confirmed. South Korea also reported 60 more cases and confirmed infections now stand at 893, only second to China. Cases of infection for South Korea have mainly been observed in members of a Daegu religious grouping and some 9,000 members of the group are being investigated. Iran has also become another hotbed of new infections with allegations flying around that the government is trying to cover up the actual number of infections. As at end of day Monday, officially 61 cases had been confirmed with 12 deaths, but unofficial sources suggested that as many as 40 people may have perished already. More alarmingly, the outbreak has been mostly centred around Qom, a city visited by millions of Shia Muslim pilgrims from the world over and may potentially turn into another outbreak epicentre.
The DOW shed over 1,000 points on Monday, it’s third worst daily drop in history, as concerns over the spread of COVID-19 outside China took centre stage. Notable surges in new infections in Italy and South Korea put to doubt market hopes that the spread was going to be contained within China. The DOW shed 3.56% to close under 28,000 some way below its 29,551.42 peak just some 2 weeks back. The NASDAQ and the S&P also closed sharply lower at -3.71% and -3.35% continuing the losing streak from last week. Treasury yields also plunged with 30Y USTs closing at an all-time low of 1.8354% while 10Y and 2Y USTs both closed 10bps lower at 1.3722% and 1.2537% respectively.
New Chancellor Rishi Sunak is under growing pressure to ditch a £10bn raid on pension tax relief proposed under former Chancellor Sajid Javid. A growing chorus of Tory voices is against the proposal arguing that the tax burden is already too high in Britain. The Treasury declined to comment on whether Sunak would drop the proposal as the chancellor prepares to send his Budget tax proposals to the independent Office for Budget Responsibility for costing. The pound closed weaker at $1.2924 while yield on 10Y and 30Y UKTs was lower at 0.540% and 0.977% respectively.
EU leaders left Brussels on Friday having resolved little regarding the EU budget. Following 24 hours of talks, very little progress was made for the EU’s new 7-year financial package with some €6 billion already stripped away, of which €5 billion was off planned defence expenditure. This comes as a blow to European Commission President Ursula von der Leyen’s goal to turn the EU from a soft influence into a hard military force. The euro closed firmer at $1.0854 while yield on 10Y and 30Y DBRs closed lower at -0.481% and 0.004% respectively.
Asian stocks were lower on Tuesday taking cues from their Wall Street peers which suffered the worst session in two years on Monday. The recent ex-China surge in new cases of COVID-19 weighed down investors with new cases being confirmed in Italy, South Korea and Iran including the general Middle East. The NIKKEI resumed trading following a holiday on Monday to lead the slide, down 3.34% while the ASX and the CSI fell 1.60% and 0.60% respectively. The HANG SENG however recovered from an early slump to close 0.27% higher.
Lebanon was downgraded further into junk by Moody’s and S&P on Friday with default very likely ahead of a redemption early March. S&P put the rating at CC while Moody’s placed the bonds in Ca rating placing it below the likes of Argentina and Mozambique. The move capped a tumultuous week for Lebanon in which the World Bank warned of implosion while yield on Eurobonds maturing in March closing the week at yields above 1,700%. An IMF delegation arrived in the country last week to assess the debt situation while Saudi Arabia said it was discussing with other countries how to assist; the statement by the Saudi Finance Minister however said any assistance would hinge on the existence of economic reform plans, something Lebanon has perennially struggled with. LEBAN 20s plunged some 5 points on Monday to trade in the low 54s with yield topping 2,200% while the black market rate for dollars now stands at about 2,500, some way from the official 1,500.
Brazil’s central bank cut reserve requirements on banks from 31% to 25% last week as part of a long-term initiative to bring down reserve requirements. The change, effective March 16, will free up some 49 billion reais ($11.2 billion equivalent) into the financial system and perhaps alleviate growth headwinds. The move may also drive faster loan growth which should further support consumer demand, one of the aspects of the Brazilian economy that has shown a turnaround. The real closed slightly firmer at 4.3885 to the dollar while BRAZIL 50s were lower, trading in the high 109s.
Foreign demand for ruble-bonds has continued in 2020 following the 34% returns investors made in 2019. With the central bank signalling more cuts, investors are bullish on the prospects of RFLBs with 10Y yields having fallen below 6% for the first time in about 10 years last week. The trend looks to follow 2019’s where $16 billion was poured into the bonds with the high demand at the weekly OFZ auctions seeing the Finance Ministry posting its biggest sale since May 2019. Slowing inflation which has seen Russia have some of the highest real rates in EM has also given the central bank even more room for cuts even after 175bps of easing this cycle. The foreign demand has helped prop up the ruble amid an oil slump with the currency only 3.4% weaker against the dollar against an 11% slide in Brent prices. The ruble closed weaker at 65.3445 to the dollar while RUSSIA 47s were higher, trading in the mid 134s.
Nigeria’s economy outperformed in 2019, growing 2.27% against expectations of 2.21%. This came as Q4 GDP rose 2.55% YoY from 2.3% in Q3 amid an increase in oil output and steps by the central bank to boost credit growth. Growth in financial services also contributed, growing 3.19% in Q4 YoY compared to 2.72% a year back. A report by the IMF last week however lowered the forecast for 2020 GDP growth from 2.5% to 2% amid the slump in oil prices. The naira was flat at 361.91 to the dollar while NGERIIA 49s were lower, trading in the low 114s.