Finding Digital Answers to Global Sustainability Threats
According to NASA, the World Meteorological Organization and the National Oceanic and Atmospheric Administration, a scientific agency within the United States Department of Commerce, the last 10 years leading up to the end of 2019, as well as the last winter, has been confirmed as the warmest decade on record. Yet, nature produced another warning for humanity in Australia with the severe 2019–2020 bushfire season that led to the burning of 21% of the country’s forested area. With the devastating coronavirus pandemic spreading across the globe and disrupting the way we live our lives, this gives us an indication of the challenge the world could face if it does not address climate change.
The world’s most prominent answer to these global challenges has been the establishment of the Sustainable Development Goals — also known as SDGs or the Global Goals — and the United Nations 2030 Agenda, which are recognized and expected to be implemented by all countries. However, the Organisation for Economic Cooperation and Development, or OECD, has determined that an estimated $2.5 trillion per year of investment is needed to deliver the SDGs. To achieve these goals in the developing countries that suffer the most from global problems, finance development ought to be deployed smartly and strategically, leveraging private capital mobilization.
Address the most critical questions on the results of the digitalization of financing to achieve the SDGs.
Consider how this process will reshape financial and monetary systems.
List the main digital-finance limitations and opportunities.
Identify the parties in charge of risk management and mitigation.
1. Digitalization will empower infrastructure frameworks for climate action and multi-stakeholder engagement
2. Collection and analysis of real economy data will help to better assess risks and investment outcomes
3. Digitalization will make impact investments more accessible and financially attractive
4. Digital technologies can bring new challenges yet to be addressed
5. Digital technologies may help to abate greenwashing of introducing new investment instruments
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NEW YORK (Reuters) – Global currency fund managers racked up gains in the first quarter as they benefited from the extreme volatility that the coronavirus pandemic has stoked across financial markets.
FILE PHOTO: A U.S. Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration/File Photo
The BarclayHedge currency traders index was up 6.13% for the first three months of the year and posted a 2.54% gain for March, according to data the firm posted on Friday, showing results for 42% of the funds it tracks.
By contrast, the S&P 500 fell 20% in the first quarter in its worst quarterly decline since March 2009, while U.S. crude oil lost 66%.
Driving the gains in currency funds has been a surge in the market swings that traders need to make money, as expectations of the worldwide coronavirus-fueled slowdown prompted investors to move out of a broad range of currencies and into the U.S. dollar.
The first quarter followed a long period of sleepy trading in currency markets that had frustrated investors and shuttered numerous funds over the years.
“March was a period of wild deleveraging, sharp reversals, and extreme moves,” said Richard Benson, co-chief investment officer at Millennium Global Investments in London, with $18 billion in assets under management.
Deutsche Bank’s currency volatility index .DBCVIX shot up to 16.36 on March 19, its highest level since at least 2012. It now stands at 10.63. In specific currency pairs, such as dollar/yen, the surge was even more significant, hitting levels last seen in November 2008 in the midst of the global financial crisis.
Many of the market’s gyrations have hinged on moves in the U.S. dollar and, to a lesser degree, other haven currencies such as the yen and Swiss franc.
The dollar was the foreign exchange market’s best performer in the first quarter, notching gains of about 2.6% against a basket of major currencies as economic slowdown fears pushed investors to sell assets across the board and pile into cash.
The dollar rose 1% last month despite a slew of measures from the Federal Reserve to flood the financial system with greenbacks to address a liquidity crunch caused in part by demand for U.S. currency.
The Swiss franc and the yen, two other popular destinations for nervous investors, were up 3% and 1% respectively in the first quarter.
Other currencies saw deep losses. Sharp declines in prices for oil, metals, and other raw materials sparked routs in commodity currencies like the Australian dollar and Norwegian krone, which fell 12% and 18% in the first quarter, respectively.
Declines in some emerging markets currencies at the end of the March were particularly eye-popping. The Brazilian real fell 23% in the quarter while the Mexican peso slid 20%.
“In periods like this, you should be long the U.S. dollar, the yen, and Swiss franc and short everything with low liquidity like the Swedish krona, Norwegian krona, and currencies close to global growth like the Australian and Canadian dollars,” said Momtchil Pojarliev, head of currencies at BNP Asset Management in New York.
BNP Paribas Asset Management’s currency program was also up in March, notching 1.5%-2% return on 5% volatility. Long positions in the U.S. dollar and Japanese yen helped BNP’s performance, Pojarliev said.
“If anyone has made money in this environment, it is by being risk averse quite quickly,” said Adrian Lee, president and chief investment officer at active currency manager Adrian Lee & Partners, which oversees $12 billion in assets.
“To some extent, there was a very gradual response to all the information that was coming out of China. So we went risk averse from the end of February and we still are.”
Lee and Millennium’s Benson both said their funds gained in March.
Reporting by Gertrude Chavez-Dreyfuss; Editing by Ira Iosebashvili and Tom Brown
SINGAPORE (Reuters) – The dollar edged toward an almost 2% weekly rise on Friday, boosted by a surge in the oil price and as investors sought safety amid the worsening economic fallout from the coronavirus pandemic.
The gains consolidate the dollar’s strength after a topsy-turvy end to last month, which had the dollar soaring in a scramble for cash, then slumping as the U.S. Federal Reserve flooded the market with liquidity.
The largest ever daily gain in prices helped the greenback to its best day in two weeks against the euro overnight, since the United States is the world’s top oil and gas producer.
It held that ground to stand at $1.0838 per euro () on Friday – ahead 2.7% for the week. Against a basket of currencies () the dollar is up 1.8% for the week so far at 100.210, its best performance since mid-March.
Moves in Asian trade were slight since traders are bracing for bad news when monthly U.S. payrolls data is published at 1230 GMT.
The coronavirus pandemic is worsening in the United States and as lockdowns extend, weekly jobless claims already soared to a massive 6.6 million last week.
The dollar was firmer against most other major currencies, last trading at $0.6054 per Australian dollar , $0.5903 per New Zealand dollar and $1.2376 per pound .
It bought 108.00 Japanese yen .
“The U.S. labour market has more or less collapsed,” said Commonwealth Bank of Australia currency analyst Joe Capurso.
“The increase in the dollar because of the poor U.S. economic data reflects the dollar’s status as a counter‑cyclical currency. It lifts when the global economy deteriorates, even if the deterioration in the global economy is the U.S.”
CBA forecasts a 200,000 drop in employment, higher than the median estimate of a 100,000 drop according to a Reuters’ survey of economists – though like most, they expect far worse to come as the data catches up to the damage in the real economy.
Global coronavirus cases surpassed 1 million on Thursday, with more than 52,000 deaths as the pandemic spread further in the United States and the death toll climbed in Spain and Italy, according to a Reuters tally of official data.
Japanese bank Nomura expects the world economy contracted 18% in the first quarter, on an annualised basis, and is tracking toward shrinking 4% in 2020.
The overnight 21% surge in the price of crude oil futures () to $29.94 gave fleeting support to commodity currencies, especially the oil-exposed Norwegian krone , which hit a three-week high, and Canadian dollar . [O/R]
Flows out of just about every asset in emerging markets in to the dollar continue, with MSCI’s emerging market currency index () sitting not far above three-year lows touched last month. [EMRG/FRX]
“Until the virus peaks, we anticipate the selling pressure will prevail and capital outflows will continue, although the biggest wave may have occurred in March,” said Piotr Matys, senior emerging markets FX Strategist at Rabobank in London.
“If a synchronised global recession transforms into depression, then all bets will be off.”
Graphic: World FX rates in 2020 https://graphics.reuters.com/GLOBAL-CURRENCIES-PERFORMANCE/0100301V041/index.html
BENGALURU (Reuters) – The U.S. dollar will hold sway in the near term, driven by demand for safe assets on a worsening global economic outlook, with other major currencies are at best expected to regain lost ground over the coming year, a Reuters poll found.
The rout in financial markets and near-certain global recession caused by the coronavirus pandemic has caused a scramble to secure dollar funds. That blew up the cost to borrow dollars in funding markets, with three-month FX swap spreads rising to 2008 financial-crisis levels last month.
But those spreads have snapped back after the Federal Reserve’s effort to improve dollar liquidity by making it easier for other central banks to swap their currencies for dollars, pushing speculators to cut their bets in favor of the dollar in the latest week.
“As markets fret anew about the scale of global dollar liabilities, I am impressed by the Fed’s resolve. The exorbitant privilege that the dollar affords the U.S. has a sting in its tail and the Fed is on the scorpion’s case,” said Kit Juckes, macro strategist at Societe Generale (PA:).
“I fancy the Fed to win this one in the end. ‘In the end’, though, doesn’t mean today, and there’s an army of dollar bulls out there taking the other side at the moment.”
The demand for safe-haven assets has pushed the dollar () to rise about 3.5% so far this year and register its best first-quarter performance since 2015.
While the Fed’s monetary policy easing should keep the dollar from surging, the dire economic outlook – confirmed by Reuters polls of economists, fixed-income strategists and long-term investors – was expected to keep the dollar’s gains this year intact in the near term. [ECILT/WRAP] [US/INT] [ASSET/WRAP]
“The global economy is heading into a recession due to the coronavirus and the USD should continue to outperform the most exposed currencies to global trade,” said Roberto Cobo Garcia, FX strategist at BBVA (MC:).
In response to an additional question, about 45% of analysts, 27 of 63, said the dollar would stay around current levels or trade within a range over the next three months. Twenty analysts forecast the dollar would fall; the remaining 16 said they expect it to rise.
“The dollar will do well all year against all the currencies that are dependent on growth. Long dollar trades are best against those overly-dependent on oil exports and the most growth-sensitive currencies – a long list, mostly emerging markets,” said Societe Generale’s Juckes.
“Economists’ forecasts are increasingly being revised in appreciation of how bad the short-term hit is going to be. After that, we’ll get the realization that while you can turn the lights off quickly in a crisis, getting them back on again is a slower business.”
But in a year from now, analysts predict, the dollar will weaken against most major currencies. That is a consensus view they have held as a group for nearly three years now, and so far, an incorrect one.
The euro, which has lost over 2% so far this year, was forecast to take back those losses to trade at $1.13 by this time in 2021.
But in the near term, the common currency, along with sterling and the Canadian dollar, were predicted to be the worst performers against the dollar in April, driven by its safe-haven status.
“We view the U.S. dollar a safe haven based on the fact that it is the world’s reserve currency and also there is an opportunity to hold Treasury debt as a high quality liquid asset – which has been outperforming and should continue to do so,” said James Orlando, senior economist at TD.
The stampede into dollars has hurt most emerging-market currencies, including the Brazilian real, the South African rand and the Russian rouble, which have lost about a quarter of their value and dropped to record lows. [EMRG/POLL]
Asked which emerging-market currencies will be the hardest hit in April against the dollar, a majority of analysts who responded chose those three currencies.
The Indian rupee, which fell to a record low on Wednesday, was expected to remain weak, with a significant minority of respondents predicting it would depreciate beyond that recent record low at some point over the next year. [INR/POLL]
Reuters poll graphic on U.S. dollar outlook https://fingfx.thomsonreuters.com/gfx/polling/dgkvlxrevbx/Reuters%20Poll%20US%20dollar%20outlook.PNG
(Polling by Khushboo Mittal, Sujith Pai and Indradip Ghosh; editing by Ross Finley, Larry King)
SYDNEY/NEW YORK (Reuters) – Asian equity markets and crude oil looked set for further losses on Thursday, after a dire warning about the U.S. coronavirus death toll and mounting evidence the fast-spreading disease has sent the world economy hurtling into a deep recession.
FILE PHOTO: Passersby wearing protective face masks following an outbreak of the coronavirus disease (COVID-19) are reflected on a screen displaying stock prices outside a brokerage in Tokyo, Japan, March 17, 2020. REUTERS/Issei Kato
Stocks on Wall Street fell more than 4% as the warning of a potentially massive death toll and growing evidence of a deep economic downturn reinforced expectations that corporate results will suffer in the first quarter and then turn sharply lower.
U.S. President Donald Trump said he is considering a plan to halt flights to coronavirus hot zones in the United States as his administration struggles to contain a pandemic that is projected to kill at least 100,000 people.
Flight cancellations to U.S. destinations would hammer an already reeling airline industry and add to an overall slowdown in business that will curb corporate earnings.
Nikkei futures NKc1 rose slightly, but sat about below the index’s cash close. Hong Kong futures HSIc1 were negative.
E-Mini futures for the S&P 500 ESc1 rose 0.67%.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.64% in early trade.
Bank stocks led losses in Australia after New Zealand’s central bank ordered lenders suspend dividends – hitting Australia’s banks since they control nearly all New Zealand’s banking sector.
Michael McCarthy, chief strategist at brokerage CMC Markets in Sydney, said bad news worldwide was starting to weigh.
“The shift in rhetoric from the White House has hurt some of the more bullish traders,” he said.
MSCI’s gauge of stock performance in 47 countries .MIWD00000PUS slid 0.08% after declining almost 4% overnight in bourses in London .FTSE, Frankfurt .GDAXI and Paris .FCHI.
“The question of whether the U.S. index goes to test the March lows will be all the talk today,” Chris Weston, head of research at Melbourne brokerage Pepperstone, said in a note.
“Earnings estimates are too high,” he said. “And when we’re hearing of companies curbing buybacks, and shelving dividend plans, then we should expect this to resonate through earnings downgrades too.”
Oil prices fell after U.S. crude inventories rose last week by the most since 2016, while gasoline demand suffered its biggest weekly drop ever as the coronavirus shut down businesses and stay-at-home mandates kept highways bare.
Analysts expect similar data in coming weeks as refineries curb output further and gasoline demand continues to decline. U.S. crude inventories USOILC=ECI rose by 13.8 million barrels last week, the U.S. Energy Information Administration said, in the biggest one-week increase since 2016.
West Texas Intermediate (WTI) crude CLc1 fell 17 cents to settle at $20.31 a barrel, after sliding to a low of $19.90. June Brent crude LCOc1 fell $1.61 to settle at $24.74 a barrel. The global benchmark fell to $21.65 on Monday, its lowest since 2002, when the now-expired May contract was the front month. The dollar gained as investors rushed to safe-havens, such as gold and government debt.
Coordinated action by central banks to boost dollar supply has helped calm extreme volatility, analysts said.
The dollar index =USD rose 0.536%. The Japanese yen JPY= weakened 0.09% versus the greenback at 107.28 per dollar.
Spot gold XAU= rose 0.12% to $1,592.52 an ounce.
U.S. manufacturing activity contracted less than expected in March, data showed, but disruptions caused by COVID-19 pushed new orders received by factories to an 11-year low, reinforcing economists’ views that the economy already was in recession.
Boston Federal Reserve Bank President Eric Rosengren said social distancing efforts meant to contain the coronavirus outbreak have “stilled” the U.S. economy and could lead the unemployment rate to “rise dramatically.”
Traders jumped toward the perceived safety of government bonds on the economic outlook, pushing the yield on the benchmark 10-year U.S. Treasury note down to 0.6019% from 0.699% late on Tuesday.
LONDON (Reuters) – How much damage has the coronavirus and the oil price collapse inflicted on global financial markets this year? Put simply, it has probably been the most destructive sell-off since the Great Depression.
The numbers have been staggering. $15 trillion has been wiped of world stock markets, oil has slumped 60% as Saudi Arabia and Russia have started a price war and emerging markets like Brazil, Mexico and South Africa have seen their currencies plummet more than 20%.
Volatility and corporate borrowing market stress has spiked on worries that whole sectors could go bust, airlines have had half their value vaporized, while cratering economies risk a new wave of government debt crises.
“It has been like a train wreck,” Chris Dyer, Director of Global Equity at Eaton (NYSE:) Vance, said. “You could see it coming and coming and coming, but you just couldn’t stop it happening.”
That carnage has seen 22% and 24% slumps for Wall Street’s Jones and S&P 500, almost 25% for MSCI 49-country world index and 27% for London’s internationally exposed .
For reference, the record quarterly drop for Wall Street was 40% in 1932 in the midst of the Great Depression. The fact that the S&P and Dow were at record highs back in mid February has made the crash this time seem more brutal.
Stocks in China, where the virus hit first, have faired relatively well in comparison with only an 11% drop in dollar terms, but the impact on other major emerging markets has been devastating as their main commodity markets, and currencies, have also collapsed.
Russian stocks, which topped the tables last year, have been routed 40% in dollar terms. South Africa, which was stripped of its last investment grade credit rating on Friday, has fallen by the same percentage, though Brazil has been the worst, plunging 50%.
A large part of that is down to some wild FX market moves. All three of those countries have seen their currencies lose over 20% this year, which also ties in to the commodity market carnage.
has fallen by 62% in the quarter to just $25 a barrel. This was not only because of the coronavirus crisis, but also the price war between Saudi Arabia and Russia, which is putting their public finances at risk.
Industrial metals like =LX>, aluminum =LX> and steel have all dropped 15-22% and some agricultural staples like coffee and sugar are down 17% and 10%.
“These are truly historical moments in the history of financial markets. 2020 will go alongside 1929, 1987 and 2008 in the text books of financial market panics,” Deutsche Bank (DE:) Strategist, Jim Reid, said.
GIVE ME SHELTER
So are they any places to shelter? Yes, but not many.
Sit-on-your-sofa-suited stocks like Netflix (NASDAQ:) and Amazon (NASDAQ:) have risen 10% and 2.5% respectively and some specialist medical equipment companies have surged.
Ultra-safe U.S. government bonds have returned 13% as the Federal Reserve cut U.S. interest rates to effectively zero, leading a charge of around 62 interest rate cuts globally.
The dollar has rocketed against emerging market currencies. It had also shot up against the majors too, but has eased back over the last two weeks and will end the quarter only 2% up against those bigger currencies.
This has left the Japanese yen, the other traditional FX safe-haven, with only a 0.4% gain. The Swiss franc is down against the dollar, although it has climbed steeply against the euro and many other currencies.
Will April bring much relief? JPMorgan (NYSE:) reckons the coronavirus will have pushed the world economy into a 12% contraction in Q1 and with pandemic still spreading rapidly and keeping large parts of the global economy shuttered it is unlikely to get much easier in Q2.
The cavalry has arrived though. G20 governments have promised a $5 trillion revival effort, major central banks have cut rates and restarted asset purchases. Markets bounced big last week until Friday came and may still end Q1 on a relative high.
Stephane Monier, Chief Investment Officer of Lombard Odier, is looking to see whether infection rates in Europe and elsewhere peak as they did in Asia. If they do, markets could see a V-shaped 30% recovery, although if they do not and cases jump in Asia again as lockdowns are lifted, it could be akin to a “war” situation which would impact the economy for 1-1/2 years.
“Our expectation is for a very volatile second quarter,” Monier said. “It is important to keep in liquid, high-quality assets.”
(Reuters) – Oil and gas companies are cutting spending plans in response to the new coronavirus and a push by Saudi Arabia and Russia to ramp up output.
FILE PHOTO: A long exposure image shows the movement of a crude oil pump jack in the Permian Basin in Loving County, Texas, U.S., November 23, 2019. REUTERS/Angus Mordant
International benchmark prices LCOc1 have more than halved since the start of the year, falling to around $25 a barrel.
North American oil and gas producers have cut capital spending by about 30% on average, data compiled by Reuters showed.
Below are plans announced by top energy companies (in alphabetical order):
Norwegian Aker BP (AKERBP.OL) will postpone non-sanctioned projects to cut its planned 2020 capital and exploration spending by 20% due to the coronavirus but maintains its production guidance. Capital spending for this year would be reduced to $1.2 billion and exploration spending to $400 million, while in 2021-2022 it expects capital spending to be “well below” $1 billion. The company said its ambition to continue paying dividends “remained firm”, but the board still had to assess the situation.
BPBP Plc (BP.L) said it planned to reduce capital and operational spending, which was about $15 billion last year.
Chevron Corp (CVX.N) said it aimed to trim spending and lower oil output in the near term. The oil major’s 2020 organic capital expenditure guidance had been $20 billion.
Norway’s DNO (DNO.OL), which operates in Iraq’s Kurdistan region, said it would cut its 2020 budget by 30% or $300 million and lower its dividend for the first half of the year.
Mediterranean gas group Energean (ENOG.L) said it would cut its investments by $155 million in Greece and Israel and could reduce its budget for Egypt by another $140 million if needed without endangering delivery of its long-term offtake deals.
Eni (ENI.MI) followed rivals by cancelling a share buyback and sharply cutting investments. It said it would withdraw plans it had to buy back 400 million euros ($433.84 million) of shares this year, adding it would reconsider a buyback when Brent was at least $60 per barrel.
North Sea producer EnQuest (ENQ.L) aims to break even this year at $38 a barrel and does not expect to restart its Heather and Thistle/Deveron fields, which produced 6,000 barrels of oil equivalent per day (boepd) last year.
It is cutting operating costs by 30% to $375 million and investment will be lowered by $80 million to $150 million, which is expected to reduce output next year.
Norway’s Equinor (EQNR.OL) has suspended its ongoing $5 billion share buyback program and said it would cut total 2020 spending by around $3 billion, including capital spending reduction to $8.5 billion from previous plans of $10-11 billion, with drilling and completion activities being postponed in the U.S. onshore.
ExxonMobil Corp (XOM.N) said it would make significant cuts to spending. It had previously budgeted $30 billion to $33 billion for projects in 2020.
Genel Energy Plc (GENL.L), which operates in Iraq’s Kurdistan region, said it could generate excess cash at a sustained oil price of $40 a barrel, would be resilient with an oil price of $30 a barrel and will continue to pay a dividend of $0.10 a share.
It said it could reduce investments to $60 million this year, but expected the number to be $100 million, below previous guidance of $160-$200 million. Its production costs are $3 a barrel.
It has yet to receive payments from local authorities for production in October and November.
Kurdistan-focused producer Gulf Keystone suspended some of its drilling activities in the northern Iraqi region.
Kosmos Energy Ltd (KOS.N) has suspended its dividend and said it aimed to reduce 2020 capital spending by 30% with a view to becoming cash-flow neutral with an oil price of $35.
Lundin Petroleum (LUPE.ST) has decided to cut its proposed dividend for 2019 by 44%, and said it was cutting its total 2020 capital, exploration, decommissioning and G&A spending by an initial $170 million or around 13%.
Papua New Guinea-focused Oil Search Ltd (OSH.AX) cut its 2020 investment by 38% and capital spending by 44%.
Premier Oil Plc (PMO.L) said it had identified at least $100 million in potential savings on its 2020 capital spending plans.
Premier expects to be broadly cash-flow neutral in 2020, assuming a $100 million reduction in planned 2020 capital spending and a $35 oil price for the rest of the year.
Santos Ltd (STO.AX), Australia’s No. 2 independent gas producer, said it was reviewing all its capital spending plans and would stop all hiring.
Saudi Arabia’s state-run oil company Saudi Aramco (2222.SE) said it planned to cut capital spending for 2020 to between $25 billion and $30 billion, compared with $32.8 billion in 2019.
ROYAL DUTCH SHELL
Shell (RDSa.L) lowered capital expenditure for 2020 by about $5 billion on Monday and suspended the next tranche of its share buyback plan, as the company tries to weather a hit from the recent oil price crash.
Total (TOTF.PA) said that with prices of $30 per barrel, it would now target organic capital expenditure cuts of more than $3 billion, mainly in exploration. The company will also target $800 million in 2020 operating cost savings compared to 2019, instead of the $300 million previously announced, and suspend its outstanding $1.5 billion share buyback program.
Tullow Oil Plc (TLW.L) said it would cut its investment budget by about a third to $350 million this year and reduce exploration spending, historically the group’s focus, by almost half to $75 million.
It said the oil price fall might jeopardize a plan to sell $1 billion in assets to refill its coffers, raising the risk the group’s lenders could become reluctant to approve loans essential to shoring up its future.
Wintershall Dea said it would cut 2020 investment by a fifth to 1.2 billion to 1.5 billion euros ($1.3 billion to $1.7 billion) and suspend its dividend until further notice.
Reporting by Ron Bousso, Sonali Paul, Shadia Nasralla, Nerijus Adomaitis; Editing by Jason Neely, Kirsten Donovan and Ken Ferris
BENGALURU (Reuters) – Major government bond yields will trade near their current lows in the coming year, foreshadowing a deep recession driven by the coronavirus pandemic, according to fixed-income analysts in a Reuters poll who said the bias was for them to drift lower.
As global share markets crashed, traders and investors fled headlong to the safety of bonds to hedge the economic trauma from the coronavirus, pushing sovereign bond yields to record lows earlier this month.
That comes despite most central banks stepping up efforts by cutting rates and announcing unprecedented easing in emergency moves.
But since then, bond markets have also been highly erratic, as trading books were damaged from orders in markets falling to a trickle, driven by a lack of liquidity.
Still, a majority of analysts, after expecting higher yields for years, have thrown in the towel and said the most likely path over the next three months was to stay around current levels and be range bound, or fall further.
That is driven by predictions the global economy was already in a recession, according to a majority of analysts, similar to economists’ expectations in a separate Reuters poll published on Friday. [ECILT/WRAP]
“The recent sell-off in U.S. Treasuries and (German) Bunds is more about a generalised rush for cash than about supply fears. For now, collapsing growth, low inflation and mega-easy monetary policy warrant low yields,” noted analysts at Societe Generale (PA:).
“Volatility and liquidity were the key drivers of Treasuries, with the monetary bazooka and expectations of a large fiscal package doing little to assuage fears. We expect Treasury yields to decline as the Fed and global central banks engage in QE and other extraordinary measures to provide stimulus.”
Even the U.S. bond market, the most liquid in the world, ceased to function earlier this month, as traders sold off any asset in their possession to make up for losses elsewhere and to stock up on cash, particularly dollars.
While the Federal Reserve has announced enormous stimulus measures, financial markets have not budged.
The U.S. 10-year Treasury yield fell to 0.3% on March 9, a record low.
A separate Reuters poll of economists showed the longest U.S. expansion on record has come to an end and there was a 80% chance of a U.S. recession this year. [ECILT/US]
“We don’t know how deep this is…the Fed is just pulling out all the stops throwing everything in, including the kitchen sink, and we’re going to see some efforts from Washington. It is not going to prevent things from getting worse; at best it may sort of lessen the damage. But we still have to go through it in the near-term,” said Scott Brown, chief economist at Raymond James.
“There’s a lot of second and third round effects, when people start losing their jobs or they are not spending…and this really gets to the unwieldy problem with the forecast.”
The U.S. two-year, 10-year yield curve, which is closely watched as a recession indicator and flattened as far as 2 basis points earlier this month, was expected to steepen during the coming year to more than 50 basis points, which is just about double the size of a typical central bank rate change.
That part of the yield curve was briefly inverted in late August and early September.
While have risen by about 50 basis points from their record lows, they were still one full percentage point lower than where they started the year.
The consensus now is for the 10-year yield to rise 45 basis points to 1.25% in a year from around 0.8% on Tuesday. That median expectation was the lowest seen in Reuters poll records going as far back as 2002.
Just three months ago yields were expected to be around 2.0% in 12 months’ time and at nearly 3.0% a year before that – which was not predicted by any analyst in the latest poll for the coming year.
“I’m not forecasting that the 10 year yield is going to get back to 3%, because we’re not forecasting growth even when we’re past this virus time period to rebound much more than 2% in the United States and we’re not expecting inflation to take off either,” said James Orlando, senior economist at TD Economics.
Yields on 10-year German Bunds, UK Gilts and Japanese government bonds (JGBs) were forecast to be around 10 basis points up or down from their current levels, suggesting any rise or fall for these securities would be limited.
Yields for benchmark U.S., Germany and UK bonds could drop to as low as 0.50%, -0.70% and 0.30%, respectively, in the next three months, according to the median view.
(Polling by Manjul Paul, Sumanto Mondal and Khushboo Mittal; Editing by Ross Finley and Chizu Nomiyama) OLUSECON Reuters US Online Report Economy 20200325T002723+0000
By Gertrude Chavez-Dreyfuss, Kate Duguid and Abhinav Ramnarayan
(Reuters) – Investors across a broad range of asset markets breathed a sigh of relief Tuesday, a day after the Federal Reserve rolled out unprecedented measures aimed at boosting liquidity and bolstering investor confidence in the face of a spreading coronavirus pandemic.
As equities ripped higher around the world, a string of investment-grade companies tapped a better-functioning debt market for much-needed cash after the Fed’s measures helped ease a logjam that had frozen credit markets.
The rate at which companies could borrow high-grade, short-term loans mostly decreased, while rates for lower-grade paper continued to increase at some maturities and decreased modestly at others, according to Fed data.
The U.S. dollar edged lower against a broad range of currencies, while Treasury yields rose, a sign that investor concerns had eased, at least for the moment. Meanwhile, the marked its best one-day gain since 1933.
Few believe the markets have seen the last of the heavy bouts of selling and stretches of illiquidity that have plagued them during a month-long selloff that has slammed everything from equities to oil. Yet Tuesday’s moves were a potential sign that investors were giving at least a tentative stamp of approval to the Fed’s unprecedented interventions of the last week and a potential $2 trillion in fiscal stimulus from the government.
“The promise of fiscal stimulus in addition to what the Fed has begun to do encourages investors that we don’t have to go through this alone,” said Michael Farr, president of Farr, Miller & Washington LLC. “It lets us know that the government will … make sure the financial plumbing is working and well oiled.”
Among other signs of abating tensions, prices on credit default swaps fell, suggesting that worries about corporate insolvency was easing. The spread of Markit’s investment grade credit default swap index – used as a barometer of sentiment about the investment grade market – dropped around 14 basis points on Tuesday, indicating that investors were demanding less of a risk premium to hold the debt .
Nestle (S:) and Sanofi (PA:) were among the firms to tap credit markets where bids for their long-term debt totaled more than 24 billion euros.
The U.S. LIBOR-OIS spread, which measures the difference between secured and unsecured lending in the United States, also narrowed. The one-month spread on Tuesday slipped to as low as 98.7 basis points , down from 105.67 basis points last week. A higher spread suggests banks are becoming more nervous about lending to each other.
“Things are slowly starting to improve on the dollar funding front,” said Michael Chang, interest rates derivatives strategist at Societe Generale (PA:) in New York. “The Fed has done as much it could and it’s really in the hands of the fiscal policymakers.”
Meanwhile, a key measure of the premium investors pay for access to U.S. dollars remained close to its lowest since March 3. That measure, the euro-dollar swap spread, fell to 5.6 basis points, having risen as high as 86 basis points last week.
Senior U.S. lawmakers said they were approaching a deal on a $2 trillion coronavirus economic stimulus package, raising hopes that the divided U.S. Congress could soon act to try to limit the pandemic’s economic fallout.
Many investors remain braced for more volatility ahead, however. The trajectory of the coronavirus pandemic remains uncertain, while its economic toll is becoming increasingly clear.
U.S. unemployment could hit 30% and second-quarter economic output could be half the norm, St. Louis Federal Reserve President James Bullard told Reuters in an interview.
Some investors see “a lose-lose situation,” said Michael O’Rourke, chief market strategist at Jones Trading. “You either break the healthcare system or you break the economy.”
HONG KONG (Reuters) – Evidence of the devastation wreaked on the global economy by the coronavirus pandemic mounted on Tuesday as activity surveys for March from Australia and Japan showed record falls, with surveys in Europe and the United States expected to be just as dire.
After an initial outbreak in China brought the world’s second largest economy to a virtual halt last month, an ever growing number of countries and territories have reported a spike in infections and deaths in March.
Entire regions have been placed on lockdown and in some places soldiers are patrolling the streets to keep consumers and workers indoors, halting services and production and breaking down global supply chains.
Mirroring the emptying of supermarket shelves around the world, indebted corporates have rushed into money markets to hoard dollars, with a global shortage of greenback funding threatening to cripple firms from airlines to retailers.
“The coronavirus outbreak represents a major external shock to the macro outlook, akin to a large-scale natural disaster,” analysts at BlackRock (NYSE:) Investment Institute said in a note.
Purchasing Managers’ Index (PMI) surveys from Japan showed the services sector shrinking at its fastest pace on record this month and factory activity contracting at its quickest in a decade.
Services PMI slumped to a seasonally adjusted 32.7 from February’s 46.8 and manufacturing PMI fell to 44.8 from a final 47.8 last month. The 50 mark separates growth from contraction.
The survey results were consistent with a 4% contraction in the economy in 2020, Capital Economics senior economist Marcel Theliant said. The likely postponement of the Tokyo Olympics is expected to deal a heavy blow to the world’s third largest economy.
In Australia, the CBA Services PMI fell to a record low of 39.8 as restaurants, cafes and tourism were hit hard by travel bans and cancellations of events and concerts.
A separate analysis of card spending data by Commonwealth Bank of Australia (AX:) showed shopping outside of grocery, alcohol and healthcare was bleak. A weekly consumer confidence gauge by ANZ-Roy Morgan plunged to 30-year lows at 72.2 points.
Later on Tuesday, the euro zone composite PMI is expected to come in at 38.8, the lowest since early 2009. U.S. manufacturing and services PMIs are also expected at multi-year lows of 42.8 and 42.0, respectively.
With most asset markets tanking, global central banks have been rolling out extraordinary measures on an almost daily basis to stop the rot.
In its latest drastic step, the Federal Reserve on Monday promised bottomless dollar funding.
For the first time, the Fed will back purchases of corporate bonds, backstop direct loans to companies and “soon” will roll out a program to get credit to small and medium-sized business. It will also expand its asset purchases by “as much as needed.”
The Fed last week slashed borrowing costs to zero and took other emergency steps to keep the commercial paper, Treasury and foreign dollar funding markets functional.
Still, some analysts say infinite monetary policy easing may not be enough and fiscal steps are crucial. The latest U.S. effort on that front remains stalled in the Senate as Democrats said it contained too little money for hospitals and not enough limits on funds for big business.
Finance and monetary leaders from the world’s 20 largest economies agreed on Monday to develop an “action plan” to respond to the pandemic that the IMF now expects to trigger a global recession, but offered no specifics.
“For the U.S. economy to be able to come out of the current crisis and the ongoing recession relatively unscathed, more radical policy interventions will be needed in the next few weeks,” Anna Stupnytska, global head of macro and investment strategy at Fidelity International said.
Speculation is mounting that data due on Thursday will show U.S. jobless claims rose an eye-watering 1 million last week, with forecasts ranging as high as 4 million.
Goldman Sachs (NYSE:) warned the U.S. economy could contract by an annual rate of 24% in the second quarter, two-and-a-half times greater than the previous biggest contraction in the period after World War Two.
Asia is also easing monetary conditions across the board, with the Thai central bank expected to join regional peers in cutting rates on Wednesday.
With the Bank of Japan running out of ammunition, the pressure is on the government, which is looking into offering cash payouts to households as part of a package that could be worth more than $276 billion.
The Reserve Bank of Australia has flooded the system with nearly A$65 billion since March 12. It has also purchased A$9 billion in government bonds since launching its “unlimited” quantitative easing program on March 20.
The Australian government also announced a stimulus package of A$66.1 billion on top of the A$17.6 billion flagged earlier this month.
New Zealand said on Tuesday that retail banks will offer a six-month principal and interest payment holiday for mortgage holders and small business customers whose incomes have been affected by the economic disruption from COVID-19.
“Despite aggressive moves by central banks, investors remain unconvinced that any of these actions will be enough to stave off the ill effects from (the virus),” ING Asia economist Prakash Sakpal said.