Market movers today
Today is another day, where we should ignore most data releases and focus on the spreading of the coronavirus and how policymakers respond. Also markets will probably remain fragile and volatile for some time despite significant central bank action. Investors probably want to see the virus situation stabilising before that changes.
The most important data release is the ZEW confidence indicator for March due out at 11:00 CET. Given the sharp fall in markets, we would not be surprised if we see a significant drop.
US production data for February may be interesting in the light of the shutdown in China but will not reflect the current negative development in the US, where the authorities are implementing measures to slow the spreading of the virus.
The UK jobs report for January should be ignored, as it is already outdated.
Selected market news
Following its statement on Friday to extend loans to corporates through banks of up to SEK500bn, the Swedish central bank yesterday evening announced its second targeted package in order to combat the risk of a significant slowdown in the Swedish economy. As such, the Riksbank said that it will (starting with government bonds potentially already today) increase its holdings of SGBs, Kommuninvest and SEK covered bonds (specific details to follow the coming days) by SEK300bn this year in addition to current reinvestments of its government bond portfolio of c. SEK350bn. It is the first time that covered bonds are included in a Swedish QE programme as the Riksbank has previously expressed concern about adding to a potential housing bubble if covered bonds were to be included.
In addition to the above the interest rate on the standing overnight lending facility will be lowered from currently repo+75bp to repo+20bp, thus making the interest rate corridor close to symmetric (standing deposit facility at repo-10bp) and there will be weekly auctions where unlimited liquidity of a 3M maturity will be offered at repo+20bp.
The move comes as SEK covered bonds have fared worse than peers and the 5Y segment has at the time of writing widened 18bp to swaps during the past three weeks. Also 3M Stibor has been on the move recently and it will be interesting to see whether the new corridor will put downward pressure on the fixing. All in all, this package is quite substantial and primarily meant to address and pre-empt liquidity issues and credit market concerns and is thus more of a financial stability measure than a response to weak macro. Hence, we still would not rule out a rate cut as we believe the Riksbank at some point in the near future will have to address the sliding inflation as well.
Yesterday the Eurogroup released a statement on the economic policy response to the current situation. The Eurogroup proposes letting automatic stabilisers work without regard of the financial costs and adding fiscal measures corresponding to 1% of GDP consisting of funds targeting SMEs as well as EIB being involved.
