Period: March 14-20, 2020
Main topic: The key event is a sharp (historically largest) decrease in the discount rate of the US Federal Reserve System and the promise of colossal injections of cash (into the trillions of dollars over the course of several months) in the financial system. The main result after a week – the markets did not pay any attention to it! The decline continues.
This means that the level of psychological discomfort based on the beginning of a correction in the market, the collapse of oil prices (although by the end of the week they began to rise) and the epidemic of the coronavirus became extremely high. As long as it does not begin to decline, the collapse will not stop. In addition, political problems are imposed, for example, in the United States – a political campaign that led to the fact that representatives of the US Democratic Party intentionally “nightmare” the voter with the aim of criticizing Trump.
In this case, most likely, the danger of coronavirus is exaggerated. This can be seen both in China (where the epidemic is almost over), and in Russia (the minimum number of infected even in Moscow), and in Sweden, in which the epidemic is generally not considered dangerous. It is possible that the state authorities deliberately exaggerated the danger (in the United States – under political pressure) and are now working out management mechanisms in emergency situations.
As expected, Chinese data for January-February were record-breaking terrible: fixed capital investments collapsed by 24.5% per year (before that they had never gone below zero), the same story in retail sales (-20.5% per year, the first minus in history), industrial production declined 13.5% (30-year low).
The New York Federal Reserve Index has fallen to the bottom since March 2009. The Philadelphia Federal Reserve Index has followed the same path (at least since July 2012).
A similar situation in Japan, Reuters Tankan is the weakest in more than 10 years; the German ZEW index is the worst since December 2011, the size of the monthly decline is the bleakest in all 29 years of observation; same with the ZEW indicator for the eurozone.
A similar situation with the IFO German business climate index (bottom since August 2009 and the worst monthly decline in history);
Australia’s leading indicators fell 0.4% per month – the worst trend in 8 years; GDP forecast for six months ahead promises a decline of 1%.
US retail sales fell 0.5% per month — a 14-month bottom; excluding cars, the picture is similar; The number of initial applications for unemployment benefits in the United States in mid-March soared since the beginning of September 2017. The US Fed at an emergency meeting nullified rates, resumed a quantitative easing program and a crisis plan to provide dollar liquidity; the discount rate went down. The Bank of England followed the same strategy.
The European Central Bank (ECB) has nowhere to reduce the rate (it is already in the red), however a large-scale asset repurchase program has been launched.
Conclusions: Most likely, the recession on Monday will continue. The likelihood that it will be able to be stopped exists, but this will require serious activity from the states and some internal political stabilization in the USA. So far I estimate the probability of the beginning of a total collapse of 50%.