RiseinDollarandFiscalmeasuresacrosstheglobe

Exceptional times call for exceptional measures. Around the world, after the central banks have done their bit on cutting the rates, the federal governments have come into action as they announce measures to provide relief directly to the general public.

In US, President Trump said that US wanted “to go big” on the relief package. Contours of the package are still worked out but a near $1 Trillion stimulus number is doing the round which could deliver $1000 checks directly into the account of Americans. There is also a discussion regarding deferring tax payments without interest or penalties. Fed has also started the lending facility for commercial papers which was last seen in action during the times of GFC .

Across the globe similar calls are in action. In Japan, govt has announced a $4 billion package focussing on the small and mid sized companies. BOJ has announced to buy $100 billion worth of ETFs. Germany is offering a Euro 550 billion. UK govt is planning to assemble a $ 400 billion bailout fund and France’s President Macron has promised an unlimited aid for the businesses.

All the above statements carry one underlying theme that the threat of virus is not limited to the gyrations of the financial markets but will be having a significant impact on the real economy changing lives of ordinary citizens and small businesses.

The US treasury yields on 10 year paper leapt up past 1% as the news of stimulus hit the market with the fear that the spending plan will impact any fiscal deficit calculations. In other curious development, cross currency basis swaps between US Dollar and other currencies like Euro and Yen have been going up which essentially indicates that securing dollar funding remains difficult even with Fed vowing to provide ample liquidity to the markets. Dollar index also inched up close to 100. Every one it seems wants to move to the security of dollars but given what happened to dollar bonds it looks like that cash is the preferred asset class for now!

Coming back to the issue of crisis impacting the wider public. In his book The Ascent of Money author Niall Fergusson writes that the primary reason of French revolution was that French monarchy lost money in the financial markets and ended up raising taxes which ultimately led to a severe backlash and finally in storming of Bastille and consequent revolution. History apart, political brass across the world is cognizant of perils of letting general populace getting too much anxious.

Domestically INR is holding strong with positive impact of falling crude and negative impact of FPI selling delicately balancing each other. As the number of cases of virus infection rise in India the future course depends entirely on trajectory of the cases.