Today we face a situation where the words in big friendly letters at the front of The Hitchhikers Guide to the Galaxy are appropriate. DON’T PANIC. Although we do immediately have an issue as we looking at the likely actions of a group of people who are prone to panic ( as we saw around March 19th 2020) and are never happier than when they are travelling in a pack. So we have arrived in territory where emergency interest-rate cuts are a possibility. Let us start by looking east.
Bank of Japan
We can start looking at the land of the rising sun via this.
*JAPANESE FINANCE MINISTER KATSUNOBU KATO SPEAKS IN TOKYO
*KATO: URGING INVESTORS TO STAY CALM (investing.com)
His advice would be best sent to his own central bank as in it guise as the hedge fund The Tokyo Whale it owns some 37,186,178,276,000 Yen of Japanese equities. Actually that is at the buying level so even after the recent falls the big figure is probably still north of 50. But when you own that much and this happens.
Tokyo Markets HALTED The Nikkei 225 and Topix futures trading has been suspended after both indexes crashed over 8.3%, triggering circuit breakers. ( @DD_Geopolitics )
First we have a reminder that many markets do have limits. But back to the main point the idea of it being activated is quite something when you have as large a position as The Tokyo Whale does. Here is the Japanese owned Financial Times.
In Japan, the Topix was down 6.5 per cent, having fallen as much as 9.6 per cent, while the Nikkei 225 declined 6.3 per cent.
The FT seems to have under counted here as the Nikkei 225 fell some 7.7% leaving The Tokyo Whale singing along with Colonel Abrams.
Oh, oh, I’m trapped
Like a fool, I’m in a cage
I can’t get out, see, I’m trapped
Can’t you see I’m so confused?
I can’t get out, see, I’m trapped
I have pointed this out many times over the years that when you have such a large position how can you ever get out of it? Right now The Tokyo Whale wouldbe selling into a falling market and thus in spiritual terms joining the central banks which have spent the last year or two accumulating large losses in bond markets by selling into falling markets.
As to buying well I am sure it is regretting this as I pointed out only on Thursday.
No purchases of ETFs and J-REITs shall be conducted under these terms and conditions on or after March 19, 2024.
Let us move on from the issue of The Tokyo Whale owning some 7% or so of the Japanese stock market. Although there are two other areas to consider.We often look at the Japanese Yen which has strengthened to 146 versus the US Dollar. Also more interest-rate rises have rather faded again.
ECB
The winds of change are blowing here too as we note the words of one policymaker.
In an interview with the Financial Times, Greece’s central bank governor Yannis Stournaras warned that the looming global trade war was likely to weigh heavily on Europe’s economic growth. “A notable adverse impact on growth could lead to activity being much weaker than expected, dragging inflation below our targets,” he said.
As you can see I think we can be sure he will be voting for another interest-rate cut next week ( or maybe sooner…). Indeed he rather rammed the point home.
Stournaras took issue with that view, arguing that “tariffs are definitely a deflationary measure” for the euro area. He stressed that the US’s protectionist steps were “worse than expected” and had created an “unprecedented” degree of “global policy uncertainty” that weighs on economic activity.
He also provided an estimate of what he ( or rather researchers at the Bank of Greece ) think will be the economic impact of present events.
While it was difficult to “precisely assess the impact of tariffs”, the negative impact on euro area growth “could be anything between 0.5 and 1 percentage points”, he warned. The ECB in March lowered its 2025 growth forecast for the euro area to just 0.9 per cent.
It is presumably too painful for the Financial Times to report that such a view means another year of zero growth and possibly stagflation.
Anyway I am sure that the ECB is in safe hands with such a lauded leader.
Speech by Christine Lagarde, President of the ECB, on the occasion of the conferral of the Sutherland Leadership Award in Dublin, Ireland
Crude Oil
Actually there are areas where there is some hope on the inflation front.
At the time of writing, Brent crude was trading at just below $64 per barrel, while West Texas Intermediate was changing hands for $60.54 per barrel, both down by over 2% from Friday’s close.
Last week, crude oil prices took a 7% dive after China announced retaliatory tariffs for U.S. imports, matching the U.S. rate of 34% on top of existing levies. The move was universally seen as bearish for crude oil, hence the effect on prices. (oilprice.com )
As I type this Brent Crude futures are around US $63 whereas before the impact of the Trump Tariffs it was above US $75. If we look back to the latest UK official inflation release they were recording this.
Brent crude futures rose 67 cents, or 1%, to $72.83 a barrel.
So we have quite a strong disinflationary effect in play here. This is being repeated across the commodity space.
LME copper fell as much 7.7% on Monday before paring losses to trade just 0.4% lower at $8,735 a ton by 9:57 a.m. Shanghai time, taking its loss over the past three days to around 10%. ( Bloomberg)
As you can see Dr.Copper is sending out a pretty similar signal. Disinflationary with also this.
Sending out an SOSSending out an SOSI’m sending out an SOSI’m sending out an SOS ( The Police)
Bank of England
This is a simply awful day for the research student unfortunate enough to be presenting the morning meeting. Because as well as a nearly 5% drop in the UK FTSE 100 to below 7700 suggesting negative wealth effects there was also this.
“UK house prices fell by -0.5% in March, a drop of £1,575” ( Halifax)
I do hope that their contract does not need renewing soon. He or she could mount a defence with this.
Despite this, the annual growth rate
remained steady at +2.8%, with the typical UK property now valued at £296,699.
But Governor Andrew Bailey will know how much this is lower than last month as we note the figure that is closest to his heart. He will be thinking about another part of the report.
“However, with further base rate cuts anticipated….
Oh and later today the Bank of England will sell another £750 of its QE bond portfolio.Remember when they thought they were being clever by pre-announcing their moves? Looks rather silly to be effectively withdrawing liquidity on a day like this.
Comment
We have looked at the economic events at play in this financial market turmoil. So let me now shift to what in central bank terms is the main player. We know that many organisations will have lost money and some will have lost lots of it. If someone is in such bad trouble that they are in danger of collapse then the central bankers will announce a cut in interest-rates. If not they can wait a bit to see how things settle.