Casterrian Weekly Roundup

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Last week saw markets hit by volatility not seen since the Global Financial Crisis, though the singular driving force behind collapsing values this time around is the coronavirus.

In business headlines, Flybe went into administration, the IMF announced $50bn in emergency funding, Facebook altered plans for its digital currency, and Luxembourg became the first country to offer universally free public transport.

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Currency and market commentary

As COVID-19 continues its global expansion project, there is virtually no corner of currency, stock, bond or other financial instrument markets that are not impacted.

The volatility across all markets has not been seen in this scale since the Global Financial Crisis.

Inevitably, for currencies in particular, this creates winners who benefit from others’ losses.

The U.S. dollar has continued to weaken versus most other currencies, correlating with the sharp decline in U.S. Treasury yields.

The U.S. 10-year treasury note yield seems to be on course to catch up with German and Japanese government bonds in the offering negative yields, having printed a fresh record low of 0.815%, of Friday, dropping some 35 basis points since Tuesday, and markedly narrowing the dollar’s yield advantage relative to its main peers.

Against the dollar the euro continued its gains from last week to peak with the of the biggest two-week gain the pair has seen since February 2016.

In the U.K., the sterling had a better week than it has recently after incoming Bank of England Governor took a measured tone during parliamentary testimony.

One of the key quotes he provided, no doubt reassuring to many businesses, was that “we are going to have to provide some form of supply chain finance in the not very distant future to assure that the effects of this shock from the virus are not damaging … particularly to small and medium sized firms.”

In Asia, the Japanese Yen is another beneficiary of U.S. dollar and treasury weakness.

Against the dollar, the yen printed six-month lows last week, with the combination of plunging U.S. treasury yields, and the yen’s safe haven appeal justifying the movement.

In commodities, gold benefited from safe haven demand while oil prices were hit by falling demand, both as a direct result of coronavirus fears.

On Friday in commodities:

  • Oil closed at $41.28 (-32.39% YTD)
  • Gold closed at $1,673.75 (+10.3% YTD)

Sources: Commodity prices – Markets Insider, Currencies – XE.

Flybe goes into administration as the Air Transport Association says the industry is in crisis

Flybe announced that it had gone into administration in the early hours of Thursday morning, while the air industry’s trade body announced that the coronavirus outbreak could cost global airlines up to $113billion in lost revenues this year.

Flybe, which was already reeling under financial issues, was delivered the final blow by the ongoing coronavirus outbreak that has hurt the demand for air travel.

The International Air Transport Association on Thursday warned the industry was in a crisis zone following the rapid global spread of the virus over the past week through Europe and into the U.S.

The announcement came as Southwest Airlines, the world’s biggest low-cost carrier, revealed it expected a $200m-$300m hit to first quarter core sales. Revenue per available seat mile — a key industry measure — in the first three months could now even fall on last year against expected growth of at least 3.5 per cent.

Read the full report from the Financial Times by clicking here.

IMF to make $50billion in emergency funding available

The International Monetary Fund announced on Wednesday that it’s to make $50bn in emergency financing available for low income and emerging market countries to counter the impact of the corona virus outbreak.

Its Managing Director, Kristalina Georgieva, said the outbreak is a ‘global problem calling for a global response.’

The IMF expects the global supply of goods to be disrupted and the demand for goods to fall. It believes these impacts will spill across borders.

It believes global growth this year will drop below last year’s level.

The announcement followed a similar one made on Monday by the World Bank, which is offering $12billion to help countries cushion the economic impact of the virus.

You can read the full article from RTÉ news by clicking here.

EU member states call for 2030 climate target

Twelve EU states are calling for the European Commission to speed the process of setting a new 2030 climate target to serve as an ambitious example at the next global climate summit, according to a letter sent to the commission.

The European Commission wants to toughen the EU’s 2030 climate target this year, to mandate a 50% or 55% cut in greenhouse gas emissions from 1990 levels, rather than the current minimum of 40%.

But according to a letter signed by a dozen EU states the commission needs to present a climate target plan well before the U.N. climate summit in November to make time for EU members to agree on a final reduction target.

“If the fact that the EU goes in front is going to have an effect, then it not only needs to be before the summit, but also well in advance,” said Dan Joergensen, Denmark’s climate minister and initiator of the letter.

Parties to the Paris Agreement on climate change are meeting at the COP26 summit in Glasgow in November, where they must commit to tougher targets of reducing emissions.

You can read the full article from Reuters by clicking here.

Facebook rethinks digital currency

Facebook is reportedly rethinking its plans for its own digital currency after resistance from regulators, according to reports released on Tuesday.

It is now considering a system with digital versions of established currencies, including the dollar and the Euro.

In response to the reports, Facebook confirmed that the plans would include Libra.

The reports noted that the Libra Association, which Facebook founded to create the currency, will continue its work.

The social network’s digital wallet is now expected to launch this autumn, several months later than initially planned, according to the reports.

Facebook announced in June last year that it would launch the Libra digital currency, with a goal of making payments easier and cheaper.

Read the full article on the BBC News by clicking here.

Luxembourg becomes first country to make all public transport free

After a lengthy process, Luxembourg’s government has made free public transport free.

As of March 1, buses, trams, and trains in the country became completely free of charge.

The small country has been working towards a vision of “free mobility” with the aim of alleviating constant traffic issues and finding a more suitable model for sustainability.

According to the country’s minister for transport, François Bausch, the goal is that Luxembourg will “transform into a mobility laboratory.”

The price of the project was reported by the BBC to come to around $46 million. The report also suggests there will be no layoffs, and that public transport staff members who are left without roles will be transferred to new positions.

You can read the full report from Business Insider by clicking here.

Disclaimer: The Casterrian Weekly Roundup is a marketing communication and should not be used for any investment research. This document is a general communication being provided for informational purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products.