DMU 23-Mar – US Politicians Fail to Agree Aid Package; Virus Cases Spike; US and Asian Stocks Slump; Pound and Hope Up on Stimulus Packages

Contents
Click on the links below to get to the stuff you really really want.
USA – Politicians fail to agree aid package; Global virus cases surge; Bond yields tumble, stocks fall; Some useless housing data
UK – Positive reaction to stimulus packages; Pound up, FTSE 100 gains limited; FTSE 250 up almost 6%; Bonds whipsawing
Continental Europe – As UK, but before US political impasse; French budget minister pledges limitless deficit
Elsewhere – Stocks slumping following US impasse; Indian stocks tumble most as lock-down looms; Japan holding up
WTF – Suggested solution
Links
Numbers
Ts & Cs

USA

Politicians in the US failed to agree an aid package while COVID-19 cases surged. That combo dealt yet another blow to stock prices and bond yields in the US.

The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all closed between 4.5% and 3.8% lower on the day.

Demand for bonds surged again (on top of the cumulative surge that we’ve seen over recent weeks). That sent prices up and yields down (for bonds, the two always move in opposite directions). Yields on the benchmark 10-year Treasury (government bond) have dropped back down to below 0.8%. For context, they were just shy of 2.0% coming into 2020.

Some useless pre-virus economic data came in. The folk who produce these data must be looking at the work they’ve done to meet their respective deadlines in full knowledge that all they’re doing is supplementing toilet roll supplies. For the heck of it though, existing home sales in the US reached their highest annualised pace since 2007. Great.

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UK

Folk in the UK were having a less negative time of it. The reaction to fiscal (government taxes and spending) and monetary (interest rates and Bank of England bond-buying) stimulus was positive.

The value of the pound was pushed up relative to other currencies. That impeded gains being registered by companies on the FTSE 100 which generate about two-thirds of their revenues from overseas sales (higher pound = higher price exports effectively).

So the FTSE 100 closed 0.8% higher. The FTSE 250 or “mid-cap” index (the next 250 largest companies AFTER the FTSE 100) is more domestically focused. As a result, mid-cap companies give far fewer hoots as to the value of the pound, and up they went to leave the FTSE 250 5.9% higher.

Demand for bonds is whipsawing. Looking at the graph for the benchmark 10-year Gilt yield (government bond yield) is a bit like looking at a set of shark’s teeth. The yield was above 0.6% in mid-February, down to a record low of below 0.2% a couple of weeks ago, up to 0.8% last week before dropping to 0.5% a few days later.

But all this happened before US politicians failed to agree an aid package. Since then, futures (proxies for shares when the real things aren’t trading) have slumped. So don’t expect fun and giggles today.

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Continental Europe

As in the UK, the mood across Continental Europe was lifted by the latest bout of stimulus from central banks and governments.

The Euro Stoxx 50 and German DAX posted gains of around 3.7% on Friday. The big gainer was the French CAC 40 which added 5.0% after the country’s budget minister said that there would be “no limit” to the 2020 deficit i.e. they’ll forward loads of money to folk to try to offset the financial stresses brought about by actions taken to curtail the virus. Meanwhile Spains Ibex 35 only managed a 0.7% gain.

Also like the UK, these gains happened before news of the US political impasse. So don’t be surprised if the gains unwind today.

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Elsewhere

Stocks are a-tumblin’ today as folk digest the spike in virus cases (officially touching a quarter of a million) and deaths (10,000), and the US impasse.

Indian stocks are down the furthest with the the benchmark indices there currently trading more than 11.0% lower than their opening prices as the country edges towards a lock-down.

Elsewhere, drops are less brutal, ranging from Australia’s 5.3% fall to the 3.5% drops or thereabouts registered in China, Hong Kong and South Korea.

Japan appears to be holding up against the virus better than most. Relatively speaking, it appears to have a lower contagion rate, giving people hope that the financial stimulus measures there might have more effect.

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WTF (What’s The Fact?)

Suggested solution

You will need:
Hand (1)
Hand (2)
Glass
Gin
Mixers

Step 1
Open bottle of gin using hand (1) and hand (2) simultaneously.

Step 2
Hold bottle with hand (1)

Step 3
Hold glass with hand (2)

Step 4
Start pouring gin into glass

Step 5
When hand (2) feels moist, stop pouring gin with hand (1)

Step 6
Lift glass to mouth with hand (2) and sip drink

Step 7
Glance at redundant mixers

Step 8
Repeat Step 6

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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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