DMU – Stocks Up Briefly; Bond Yields All Over The Place; Bank of England Adds to Stimulus Measures; Italy Facing Recession

Contents

USA – Stock prices reprieve yesterday; Bond yields bouncing around; Virus cases still surging; Fed opened new dollar swap lines; Unemployment spikes
UK – Interest rates cut again and bond-buying pledge increased; Biggest companies up despite higher pound; Bond yields going nuts
Continental Europe – Moderately positive day for stocks; Investors digesting swathe of stimulus; Italy facing deep recession
Elsewhere – Stocks gained this morning; Hong Kong normality?; Australia implementing latest stimulus measures
WTF – See no evil…
Links
Numbers
Ts & Cs

USA

Stock prices had a bit of a reprieve yesterday as folk digested recent falls and weighed them against some fairly substantial moves being made by central banks and governments.

In the US, the Dow Jones industrial Average, S&P 500 and Nasdaq Composite added between 0.9% and 2.3% on the day. The likes of Tesla, Twitter and Netflix all posted gains of 5% or more.

Bond yields have been bouncing around lately as folk try to work out the value of bonds in the face of ultra-low interest rates and bond-buying by the central bank. Yields are higher than they were last week, but have taken a swinging route to get there.

Meanwhile, investment research resource, Bloomberg, took a mild swipe at Trump saying that he “sought to reassure sceptical Republicans that he’s aiming to help workers through the crisis”. I’m pretty cynical about Trump, but I’m not owned by someone who has just been running for the Democratic nomination for presidential candidate.

Virus cases are still surging across Europe and North America, so I for one am not piling back into the markets just yet.

In the meantime, the Federal Reserve (US central bank) has opened nine new dollar swap lines (quote that to your mother-in-law). This gives countries that need access to dollars a bit of a cash lifeline, and takes pressure off countries that might otherwise be facing a lack of hard currency (dollars, euros, yen) in their own countries. In short, it should help to keep the international financial system running.

Other data are beginning to show the economic effects of measures to slow the contagion of the virus. The number of people filing for unemployment spiked last week as folk are laid off due to shut-downs and tumbling business turnover.

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UK

More robust intervention from new boys Rishi (Chancellor of the Exchequer) and Bailey (Governor of the Bank of England).

Squishy did all his pledging earlier in the week (£330 billion of support through grants, loans and tax holidays), while Bailey stepped in yesterday on day four of his tenure to take major action.

The Bank of England cut interest rates by 0.15 of a percentage point to bring them down to just 0.10%. That’s an all-time record low in the hundreds of years since the BoE was formed.

Bailey’s Boys also pledged to buy £200 billion of bonds with new cash. These measures are designed to make lending cheap and readily available. The combined effect ought to help support ailing companies and households as they face a sudden vanishing of income.

Stock prices and the value of the pound were swinging around all over the place during trading yesterday. In the end, the FTSE 100 posted a 1.4% gain on the day. Its biggest companies led the gains despite a partial recovery in the value of the pound which, on other days, would have hampered export sales and stock price rises. These are weird times.

The FTSE 250 closed 1.4% lower on the day as investors adjusted to the slew of public announcements by moving out of utilities and consumer goods while not really moving into much.

Bond yields have been going nuts. Over the past week, the yield on the benchmark 10-year Gilt (UK government bond) has swung between 0.159% (it’s lowest ever) and 0.800% – close to highs in December, September and July of 2019. The prices and yields are being thrown around by people piling into bonds as other assets turn to poo, piling back out of them as government and central bank policies undermine their value, then trying to work out which is the stronger influence. Fun. At the time of writing, the 10-year Gilt yield is trading at around 0.590%.

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Continental Europe

Stock prices across Continental Europe had a moderately positive day (I’d be going on about how positive it was across the board with these numbers under different circumstances).

The Euro Stoxx 50, German DAX and whatnot generally posted gains of between 2.0% and 2.9% on the day. Every sector of the Euro Stoxx 50 was up as investors digested the unprecedented swathe of fiscal (government) and monetary (central bank) stimulus being poured into circulation.

The realities of the lock-down in Italy are being felt. The likelihood is that the country will sink into a recession. The problem when folk come out of isolation is whether they’ll still have jobs to go to. That’s why all these financial measures are being taken across the world.

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Elsewhere

Stocks across the Asia Pacific region have been posting gains this morning. The benchmark stock indices in Japan, Australia and mainland China are all up by between 0.7% and 1.8%. More major gains are being registered in Hong Kong, South Korea and India.

One point of note, is that life appears to be returning to normal (i.e. street protests, democracy being stifled, that sort of thing) in Hong Kong. Might this be a genuine ray of light in an otherwise bleak outlook?

In Australia, the central bank began to implement its latest bond-buying scheme. That pushed bond prices back up and yields back down after a period during which folk had been losing faith in the value of bonds, what with interest rates being so low and alternative forms of investing and borrowing being lower risk or lower cost.

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WTF (What’s The Fact?)

See no evil…

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Links

Investopedia – Loads of free explanations of financial terms including some helpful videos. Not 100% accurate, but a good starting point
Guffipedia – Lucy Kellaway of the FT has collected some painful examples of corporate people disappearing up their own analogies
Guardian – Free to access website with a couple of decent columnists (e.g. Nils Pratley and Larry Elliott)
Times of India – Why use five words when 37 will do?
Daily Mail – Click it. I dare you.

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Numbers
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