Tuesday, March 10, 2020

Italy Expands Quarantine, Stocks Plummet

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What’s happening: Italian stocks tumbled on Monday after the country’s prime minister expanded the quarantine following a rise in the coronavirus-related death toll.

What happened: Italy placed more than a quarter of its citizens, mostly living in northern parts of the country, on lockdown, limiting interaction for about five weeks. The move was followed by the European country reporting the highest number of deaths outside China, which sent the Italian FTSE MIB down more than 11% on Monday.

Why it matters: Italy’s Prime Minister Giuseppe Conte signed a quarantine decree on Sunday in a move to tackle the outbreak he referred to as “a national emergency.” The coronavirus cases in Italy exceeded 9,172, with the deal toll climbing to at least 463. The case count of the country has surpassed the number of cases from South Korea and Iran. As per the latest data, Iran has confirmed 7,161 cases, while South Korea reported 7,478. 

There are over 113,000 coronavirus infections globally, with 3,995 deaths. However, at least 62,000 persons have recovered from the infection. The WHO has not yet declared the virus a pandemic, but its Director General Tedros Adhanom Ghebreyesus warned on Monday saying, “Now that the virus has a foothold in so many countries, the threat of a pandemic has become very real.” At the same time, Ghebreyesus assured reporters saying that this “would be the first pandemic in history that could be controlled.”

As per the quarantine restrictions, schools and movie theaters will remain closed for almost a month. People in the quarantined zone are also required to maintain a distance of at least 3 feet from each another in restaurants and bars. Italian leaders advised people of North Italy to follow the restrictions and not pass the outbreak to the southern regions of the country, which is so far unaffected from the virus. Some violent protests were also reported in Italian prisons against restrictions imposed by the government.

The Prime Minister surprised the markets again on Monday saying all 60 million Italian citizens would be facing restrictions on movement starting Tuesday. Additionally, Germany’s health minister announced the cancellation of large events to control the outbreak.

The decline in the markets was also triggered by a slump of around 30% in oil prices, on news of a possible price war between Russia and Saudi Arabia. The Italian FTSE MIB index shed 11.17% to close at 18,475.91, with shares of Eni plunging around 21% and Enel Group down around 10%.

What to watch: The market will look out for further announcements by the Italian government related to the lockdown and any news of a decline in new coronavirus cases. Investors will also be hoping for some positive news related to economic releases to lift the market.

The Markets Today

     

The euro is likely to be in focus today, with the currency hitting a 14-month high against the US dollar on Monday​.

Context: The euro continued its upward momentum from last week, starting this week higher versus the greenback. The US dollar has recently been under pressure due to a possible oil price war between Russia and Saudi Arabia.

Details: The EUR/USD pair surged to a 14-month high of $1.1452 on Monday, with the euro getting a boost from Germany’s data and fiscal stimulus. Germany’s industrial production surged 3% in January, versus a revised 2.2% decline a month earlier. With coronavirus having the potential to change everything and Germany likely to feel the heat in the upcoming period, the government already announced a fiscal stimulus plan to give the economy a boost.

The greenback started the week lower, with investors expecting a further rate cut from the Federal Reserve during its scheduled meeting next week. The Fed had lowered interest rates by 50 basis points last Monday to provide some relief to the economy following coronavirus fears.

In other news, the yield on 10-year US Treasuries declined, falling below 0.5% for the first time in history, while WTI crude oil tumbled around 25% on Monday.

The EUR/USD pair was trading down 0.5% at 1.1379 at 4:48am GMT.

Why it matters: Following the recent strong performance of the euro, all eyes are on Eurozone’s GDP growth and employment change reports, scheduled for release today.

What to watch: The Eurozone economy is expected to grow 0.1% in the fourth quarter, down from 0.3% growth in the earlier three-month period. Preliminary estimates call for a 0.3% rise in the employment rate in the fourth quarter.

Other Market: Most European indices closed lower on Monday, with the FTSE 100, German 30 and French 40 down 7.69%, 7.94% and 8.39%, respectively.

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What else to watch today

     

France’s payroll employment and industrial production, Turkey’s unemployment rate, Italy's industrial production, Brazil's industrial production as well as the US NFIB small business optimism index and Redbook index.