Market movers today
Today is another day where we focus on the development on the coronavirus crisis and what policymakers will do. Not least, investors will digest the new temporary purchasing programme of EUR750bn ECB announced very late yesterday (see more below and here ). Focus is also on the upcoming negotiations in the US Congress on a third and much bigger fiscal package of up to USD1,200bn. With Trump shifting from demanding tax cuts to demanding direct payments to Americans, we assign a more than 50% probability that a big package will be approved within a couple of weeks.
Today, the most important data release is the initial jobless claims, which cover the week ended 14 March. We should expect to see a big jump already here and we should expect the number to jump even further in the weeks to come. This is one of the fastest indicators we will get for the impact of the US measures implemented to slow down the coronavirus spreading. This will eventually be decisive for how much the politicians will do in the US to offset the crisis.
Notice that the ordinary Norges Bank meeting scheduled for today has been cancelled after Norges Bank held an emergency meeting Friday. The same goes for Bank of Japan, who held an emergency meeting on Monday.
We expect the Swiss National Bank (SNB) to keep policy rates unchanged at -0.75% today and strengthen its language on CHF. But, there is also a real risk that the SNB could go for a cut towards minus 1%. If that happens, it could open up the sample space on rates to the downside for other central banks currently seen to be at the effectively lower bound as well.
In this research note we take a closer looks at the fiscal, monetary, liquidity, regulatory and credit measures that have been taken in the Nordic countries to fight the COVID-19 crises.
Selected market news
Last night, ECB held an emergency meeting in response to the COVID-19 and the financial market fragmentation. Earlier yesterday, we changed our call to include a step up in its QE, ISIN limits, and even more deviations from capital key. This happened late last night. The ECB went all in with a Pandemic Emergency Purchase Programme (PEPP) with an overall envelope of EUR750bn, to be done in all asset classes under the APP. The EUR750bn envelope will be conducted until end of 2020 in a flexible manner. ECB stands ready to adjust the self-imposed (ISIN) limits. Non-financial commercial papers are included in the PEPP. We believe this will act as the circuit breaker in fixed income markets and lead to massive spread tightening and decline in credit risk.
A range of fiscal policy packages were also announced yesterday across the euro area. Austria increased the size of its emergency package to EUR 38bn (9.5% of GDP), consisting of 9bn for state guarantees, 15bn for financial support for affected businesses and 10bn for tax deferrals/suspensions. Portugal announced a package of EUR9.2bn (4.3% of GDP), including credit lines and tax deferrals as well as a possible moratorium on capital and interest payments and finally Greece came with a package of EUR3.8bn (2% of GDP) that includes suspended tax and social security contributions if companies do not cut staff; a cut in renting costs and direct 800 EUR bonus for employees unable to work due to the outbreak. 1.8bn of this will come directly from the EU’s special corona investment fund.
We also got a German response to the possibility of activating the ESM to lend to financially weak countries from finance minister Scholz . To Zeit newspaper , he said, he still does not consider it advisable, but also said “we will live up to our responsibility”.
On a non-covid-19 note, the primary election in Arizona, Florida and Illinois resulted in another sweeping victory for Joe Biden, who can now turn his attention to the November match-up with President Trump.
