Financial Market Stress
Financial market stress is all about the dollar, which is a warning that the worst may not be over. Good riddance to the worst first quarter in the history of the dollar. But that does not guarantee spring, sunshine and flowers as winter ends. As for April, it could really be the cruelest month for equities as a brief bear market rally peters out and the lows are tested again. Until there is evidence that the worst of the coronavirus contamination is under control, the economy and financial market stress are all about the dollar.
Dollar Equity
Fixed-income assets have a tendency to show where equities are headed during financial market stress on the dollar. And yet again, US Treasury bond yields are pushing lower. It is a clear indication that the financial market stress is all about the dollar. Meanwhile, Central Banks have swiftly enacted the playbook learned from the financial crisis more than a decade ago. Moreover, there are even parsimonious governments, such as Germany that are reaching for a fiscal checkbook. The emergency aid is only reaching higher-quality assets.
Downward Spiral
The Finance market stress is all about the dollar, which is pointed to mounting job losses and business defaults. Moreover, it is being said the range of negative outcomes is wider now. In fact, the current economy resembles depression and that you could expect many defaults. So it advocates a hardline approach with no government bailouts.
Scramble for Cash
The critical fault line in the coronavirus-induced selloff has been the sudden strength in the dollar. Finance market stress is all about the dollar until the Federal Reserve can satisfy onshore and offshore demand for the greenback. If not, the economic effects of that will spread like wildfire. Everybody is desperate for liquidity, from the commercial property market to blue-chip companies.
Dollar Liquidity
With this lack of access to liquidity rising all over corporate America, assets everywhere are being used as ATMs to raise urgent funds. Financial market stress is all about the dollar, such as the crucial commercial paper funding facility. It is where the central bank will buy directly from the eligible US issuers. We have also just passed the end of the Japanese financial year, and there has been a strong demand from their banks for dollar liquidity.
Volatile Currency
The finance market stress is all about the dollar until the volatility in the dollar money markets subsides. There will be no peace for other asset classes and the intense pressure for liquidation will persist. Especially, to those, if they have an account with the New York Fed, allowing them to park US Treasury bonds in return for cash.
Financial market stress is all about the dollar because it is the world’s reserve currency. Therefore, the Fed is now acting as the central bank to all. Until it has put a lid on the financial market, the stress on the dollar and the rest of the financial markets remain in peril.
