Daily Commentary BY THE CURVE TEAM –

First Signs of Economic Fallout Emerge

27th of March, 2020

As stimulus hopes continue to buoy markets, the first major sign of the economic fallout emerges.

It was another solid night for equity markets as stimulus hopes help boost markets further from their recent lows. Using the rather crude terminology, US markets are effectively back in a bull market after rising 20% from heavily oversold levels. The reality is the true picture could take far longer to emerge.

In other markets, the USD continue to retreat after its recent surge which has seen the AUD surge back up above the 0.60¢ mark after falling as low as 0.55¢ late last week. Credit markets remain fractures with wide bid offer spreads making it difficult for many of those investors wishing to exit positions increasingly difficult.

As markets remain dislocated at best, the first major sign of the economic impact from shutdowns around the globe are emerging.

In the US we saw initial jobless claims for the week ending March 21 explode to 3.283 million people. To put this in context, the biggest week of claims during the GFC was 665,000 and the largest increase before the latest data was 695,000 back in 1982. The number of claims is in indication as to the speed in which the economy in the US has come to a standstill.

The numbers are likely to get worse as many jurisdictions were overwhelmed with applications and are unlikely to have been able to process them all. The impact is likely to be similar in many other economies going through lockdowns or shutdowns across the globe. While Australia doesn’t report weekly claims, it was reported that Centerlink received 280,000 claims in one day this week, similarly overwhelming our system.

Huge swings in the data as seen overnight as likely to be the norm over the coming weeks as containment measures to stop the spread of the virus which continues to wreak havoc on economies.

David Flanagan

Director - Interest Rate Markets