Rate cut anticipation? Asian markets down to start the week

Economic recession looms

In anticipation of the assessments of the coronavirus outbreak, the majority of Asian markets plunged on Monday, March 30. Other Asian countries experienced circuit breakers in their stock exchanges while others announced recession.

Following the ongoing talks about stimulus packages, the Asian markets experienced a drop in Monday’s trading day:

  • Japan’s Nikkei 225 went down 3.45% as shares of index heavyweight and conglomerate Softbank Group share price drops 7.64%
  • The Shanghai and Hang Seng Index suffered minor blows, dropping 1.41% and 1.03% respectively
  • In South Korea, KOSPI only dropped below 1%
  • The Jakarta Composite Index dropped as low as 5% triggering a circuit breaker

Investors are currently observing developments in the other countries while the U.S. is trying to control the number of cases as President Donald Trump announces to extend its social distancing guidelines until April 30.

Singapore central bank anticipates a recession

Due to the coronavirus pandemic, the Singapore central bank eased its monetary policy on March 30.

The Monetary Authority of Singapore (MAS) said it would adopt a zero percent per annum rate of appreciation of the policy band starting at the prevailing level of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER).

Maybank Kim Eng Securities economist Lee Ju Ye reports:

“It seems to be one of the most aggressive policy moves that MAS has taken […] They’re now basically looking at negative growth and negative inflation.”

In addition to the stimulus package unveiled by the Singaporean government, they have also announced a supplementary budget of about US$48 billion [AU$77 billion] last week.

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The MAS also adds that the two budget aid packages will help preserve jobs while providing liquidity to the financial system through its money market operations. The monetary policy will complement these measures and ensure stability over the medium term.

The central bank also expects external sources of inflation to weaken in the near term, and due to the drop in oil prices, they also expect this to stay low for an extended period. They also mentioned a lot of factors in a note specific to supply chains and labor.

“However, supply chain disruptions arising from worldwide measures to contain COVID-19 could put some temporary upward pressure on imported food prices […] The resident unemployment rate is expected to rise and wage growth ease […] Consequently, disinflationary pressures are expected to broaden, even as the prices of some imported items are likely to increase as a result of the disruptions in production and transport”

A Reuters survey this month stated that all nine economists expect the central bank to ease as policymakers worldwide ramp up efforts to contain the economic damage from the fast-spreading virus.

China surprisingly cuts rates despite flattening the curve

On Monday, China’s central bank cut rates on reverse repurchase agreements by 20 basis points, the largest in nearly five years.

This unexpected move was done as authorities are doubling efforts to relieve pressure on an economy succumbed by the coronavirus pandemic.

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Yan Se, a chief economist at Founder Securities in Beijing, said the rate cut was China’s commitment to a pledge during the G20 meeting last week to combat the coronavirus and stabilize financial markets. Since many other nations have implemented drastic steps such as quantitative easing Yan adds:

“China was the only major economy that had not yet implemented large-scale easing measures.”

As of this writing, China has now a total of over 81,000 cases with over 75,000 recovered patients according to Worldometers.

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