Markets
Investors tried to assess how much bad news was discounted after yesterday’s sharp risk-off decline in equities, yields and the dollar. US president Trump (and several other governments) announcing or even already implementing a first package of fiscal aid helped to ease further aggressive selling of risky assets, causing a ‘technical’ countermove on yesterday’s decline. However, this rebound still left most equity and USD investors with heavy losses. Even more important, sentiment remained fragile. The equity rebound for now fails to take out first minor intermediate resistance. Investors apparently aren’t convinced that even the combined effort of fiscal and monetary authorities will be enough to comply with a potential/likely new flaring-up of the corona-and/or oil crisis. The prove of the pudding is in the eating. The reaction to president Trump’s fiscal measures will be instructive on markets’ confidence in the authority’s ability to address the economic and financial stress. Even as there is still a high chance of renewed uncertainty, the risk-on countermove and the prospect of more fiscal support triggered the ‘logical’ rebound in core yields. Eco data were few and still aren’t of any significant relevance for global trading. The US yield curve bear steepens with yields rising between 5 bp and 10 bp. The picture on European interest rate markets was different as investors are looking forward to the Thursday’s ECB policy decision. German yields are rising between 9.5 bp (2-y) and 7.5 bp (30-y). Investors scale back the chances of an ECB rate cut on Thursday. On the intra-EMU bond markets yields spread changes again showed quite some pronounced swings. After yesterday’s sharp widening, Greek (-32 bps) and Italian (-21 bps) 10-y spreads narrow sharply against German Bund yields. Semi-core spreads hardly regain any ground after recent widening.
On the FX markets, the risk rebound also gave the dollar some respite. However, a steepening of the US yield curve with ST US yields reversing only a small part of recent decline isn’t the ideal script for a protracted USD really. After an initial decline in Asia this morning, EUR/USD settled in the upper half of the 1.13 big figure. USD/JPY rebounded from the 102 area to the 105 area and then moved up and down between the 104.00 and 105.00 area (currently 104.50). EUR/GBP also held a sideways consolidation pattern in the 0.8680/ 0.8745 trading range. The UK Treasury is reported to prepare £5 bln additional funding for the UK Export Finance Agency to support UK exports. However, this kind of measures probably won’t change the overall picture for the UK economy considering the challenges related to the corona crisis.
News Headlines
Officials from Germany’s Finance Ministry met with the country’s central bank and banking federation to discuss the counter-cyclical buffer. Under the rule banks put aside additional capital during economically good times so that lending can continue when the tide turns. Germany is now assessing whether the corona virus outbreak warrants lifting that capital rule.
Saudi Arabia announced it will pump up a record 12.3 million barrels per day of crude oil in April. The amount suggests the country is tapping from strategic inventories to flood markets with as much oil as possible. Russia responded to the move by saying that it can (and will?) boost production by 500 000 bpd. Other OPEC countries such as Iraq and Nigeria also intend to increase output by 350 000 and 100 000 bpd respectively.
Sweden’s Riksbank said that maintaining sufficient liquidity in markets is central to the bank right now. The board assessed that earlier asset purchases have been useful to that extent, adding that it will not reduce the balance sheet in the coming year. Governor Ingves stopped short of ruling out a lower policy rate, saying that it isn’t the “most important measure at present”.
