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World leaders raced to shore up panic-stricken global markets on Thursday, pouring liquidity into the financial system as investors everywhere dumped assets, switching to dollars in cash amid the escalating coronavirus pandemic.

“Policymakers in the United States, Europe and Asia resorted to emergency action as the pandemic left their economies virtually comatose, with quarantined consumers, broken supply chains, paralyzed transportation and depleted shops.”

“South Korea warned of a global credit crunch and said it was setting up crisis funds to stabilize its financial markets…

“…nearly every stock market in Asia was in the red, with Seoul, Jakarta and Manila hitting daily loss limits that trigger the suspension of trade. At one point the Philippines bourse was down 24%. In currency markets, everything except the dollar and the euro collapsed.

“J.P. Morgan economists forecast the U.S. economy to shrink 14% in the next quarter, and the Chinese economy to drop more than 40% in the current one, one of the most dire calls yet on the potential scale of the fallout.

““We’re in this phase where investors are just looking to liquidate,” said Prashant Newnaha, senior interest rate strategist at TD Securities in Singapore.”

https://www.reuters.com/article/us-health-coronavirus/world-leaders-rush-in-to-shore-up-panic-hit-global-financial-system-idUSKBN2160ZP


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“A couple of weeks ago… we compared the coronavirus’s economic effect to the credit crisis, saying that stopping the flow of people would devastate economies as badly as, if not worse than, stopping the flow of credit. Now that this thesis has proved alarmingly true, it seems also to be causing one of those original credit crises, involving, you know, credit.

Businesses and banks are scrambling for cash, and investors are dumping their winners to cover their losses… the market could… be pricing in deflation.”

https://www.bloomberg.com/opinion/articles/2020-03-18/coronavirus-crisis-starts-to-look-like-a-financial-crisis


A sell-off in the supposedly safe government bond market this week has unnerved investors looking for a haven amid the risk-asset storm. A slump in open positions in bond futures suggests a rush to meet margin calls may be partly responsible.”

https://www.bloomberg.com/news/articles/2020-03-19/enormous-de-leveraging-in-bond-market-smacks-of-margin-call-rush


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Deutsche Bank is now forecasting euro-area GDP to plunge at a 24% annual rate in the second quarter and 13% drop in the U.S.

“The declines are unprecedented. The previous record quarterly drop for the U.S. was 10% in the first quarter of 1958.”

https://www.marketwatch.com/story/severe-global-recession-will-take-place-in-the-first-half-of-the-year-deutsche-bank-forecasts-2020-03-18


Treasury bill yields turn negative on fear – “The yield on the one-month Treasury bill maturing in April slipped to minus 0.003 per cent.”

https://www.ft.com/content/317bbb84-694f-11ea-800d-da70cff6e4d3


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Interesting that the FDIC should feel the need to reassure people:

“Yes, these are scary times. But that doesn’t mean you should head to the bank, drain your accounts and put your cash under your mattress…

“First and foremost, the FDIC points out that any deposits with a bank will continue to be protected up to at least $250,000. European countries operate similar deposit guarantees, although the maximum insured amounts differ.

“The safest place for your money is inside a bank. Banks will continue to ensure that their customers have access to funds either directly or electronically,” the FDIC said.”

https://edition.cnn.com/2020/03/18/economy/banks-cash-coronavirus/index.html


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The Fed is throwing all of its fire power at markets, and yet interest rates continue to rise, a troubling sign when the economy looks set to slow down dramatically.

“Rising rates could increase borrowing costs for all kinds of loans for businesses and individuals .The credit and rates markets also are the direct target of the Fed’s stimulus programs.”

https://www.cnbc.com/2020/03/18/interest-rates-are-rising-a-bad-sign-as-the-economy-slides-toward-recession.html


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…the one major central bank that has no arrangement in place to swap dollars with the Fed is the People’s Bank of China. At the heart of the global financial system today, this is the basic faultline

“In handling the pandemic, the rivalry between the US and China has been destructive enough. Let us hope that it does not prove even more damaging in dealing with the financial fallout.”

https://www.prospectmagazine.co.uk/economics-and-finance/coronavirus-economic-crash-recession-banks-trump-us


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Bank stocks in Europe plumbed fresh mutli-decade lows despite the release of a hurriedly improvised one-paragraph announcement by the ECB pledging to do just about whatever it could take to keep the banking system in tact….

“The message may have been intended to reassure investors, calm market jitters, and stop the sell-off of sovereign bonds and bank shares but if anything, it had the opposite effect.”

https://wolfstreet.com/2020/03/18/as-european-banks-face-financial-crisis-2-shares-plunge-to-1988-low/


The British pound fell to its lowest level against the dollar in 35 years, a reflection of the U.K. economy’s unique exposure to the disruptions ripping through the global economy because of the coronavirus pandemic.”

https://www.wsj.com/articles/british-pound-falls-to-lowest-level-since-1985-11584537813


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The North Sea oil and gas industry is in a “paper-thin” position as global oil markets plummet towards 18-year lows amid the UK’s economic emergency, according to a report.

“An industry trade body said investment in the ageing oil basin, which supports about 250,000 jobs in the UK, was expected to slump by almost a third because of the market collapse.”

https://www.theguardian.com/business/2020/mar/19/north-sea-oil-gas-prices-plunge-market-collapse-uk-economic-crisis


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Experts described the historic krone collapse as a “fire sale” as it recorded the biggest single day fall in modern times. The Norwegian krone was already at record low against the US Dollar when the currency market hit the panic button on Wednesday.

““The financial markets are about to melt down. The markets almost don’t work,” says Magne Østnor, currency strategist at DNB Markets.”

https://www.lifeinnorway.net/norwegian-krone-collapses-amid-coronavirus-crisis/


Oil’s plunge has stung currencies across emerging markets, and there’s probably worse to come… Such has been the panic in global markets that even the currencies of net oil importers have tanked.”

https://www.iol.co.za/business-report/economy/this-is-how-the-oil-crash-is-hitting-emerging-market-currencies-45127921


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The nightmare in the oil industry keeps getting worse.

“It’s now facing the weakest oil price since the first term of President George W. Bush. Intensifying recession fears drove US oil prices down a staggering 24% Wednesday to $20.37 a barrel. That’s the lowest level since February 2002.”

https://edition.cnn.com/2020/03/18/business/crude-oil-prices-coronavirus/index.html


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West Texas Intermediate crude in Midland, Texas, tumbled the most in three decades.

“The grade, pumped in the heart of the Permian Basin, traded as low as $16.24 on Wednesday, the weakest level since 1999. That’s less than the cost of a ribeye at Midland’s local Outback restaurant.”

https://www.cbs7.com/content/news/BLOOMBERG-Permian-oil-is-selling-for-less-than-a-discount-steak-in-Midland-568911401.html


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Checks from the government might help people buy food and pay rent, but they won’t fill concert halls, restaurants or photo booths—especially when shelter-in-place restrictions are still in place.

““If people get $1,000 but can’t leave their house,” Williams, of PianoFight, says, “what good is that?””

https://time.com/5805526/coronavirus-economy-layoffs/


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“The 2007-08 global financial crisis — let’s call it GFC1 — was a supply shock to the liquidity mechanism, which caused a subsequent demand shock in the real economy. But this crisis, GFC2, is a supply shock to the real economy that has triggered a massive precautionary demand shock for more liquidity…

“…policymakers’ knee-jerk reaction to cut rates ever lower only makes the situation worse by encouraging the demand for debt, while simultaneously destroying the supply of liquidity by stripping banks’ margins and reducing the incentive to lend, thanks to growing counterparty risks.

Too much debt is the shadow that loomed large over the previous crisis. And this one too.”

https://www.ft.com/content/bd8686f8-6919-11ea-a3c9-1fe6fedcca75


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