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The SA Daily 23 March 2020

Easing fails to stem slide

Shireen Darmalingam

  • Financial markets have been largely unmoved by the various stimulus measures of global governments and central banks. The Fed was first to embark on a cutting cycle at the onset of the COVID-19 outbreak. Other central banks soon followed by relaxing monetary policy as a first response to supporting economic activity. The Fed has now cut rates by 150 bps, the BOE by 65 bps, the Reserve Bank of Australia by 125 bps and the SARB by 125 bps since January this year. The central banks of Canada and New Zealand too have now eased monetary policy.
  • Indeed, global financial markets have been tanking since early March as the coronavirus pandemic spread beyond China. The Dow Jones Industrial Average has lost 24.5% since early March, the S&P 500 22%, the FTSE 100 21.6% and the German Dax 24.9%. SA’s JSE ALSI has lost 21.9% in that time. The rand is at R17.71/$ now, a steep 13% drop from the beginning of March. Treasury bonds are now near historically low levels. SA’s 10-year government bond yield is at 11.67% (9.15% early March).
  • Nevertheless, volatility has tapered off somewhat — but this week faces rising anxiety as markets await news on further policy stimulus measures across the globe to cushion the economic fallout from this pandemic. The proposed $2 trillion US rescue package was blocked by Senate Democrats yesterday, as the Democrats and the Republicans differ on its key issues, for instance, the $500bn of the bill that could be used to support corporations including airlines.
  • Having already lost 5.5% last week, the rand enters this week on the back foot and will remain under pressure this week due to dollar strength.

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