Markets
While only secondary for trading, we nevertheless want to highlight today’s data as they give us a taste of the coronavirus impact. The Philly Fed Business Outlook in the US tumbled from 36.7 to -12.7, the biggest fall on record. The virus is also starting to ripple through the US labour market, with jobless claims surging to 281 000 (from 211 000). In Germany, the early release of the Ifo business indicator showed confidence collapsing to levels seen in the financial crisis. The drop in the expectations component in the services and manufacturing was the steepest on record. Expectations for trade fell to the lowest level since the German reunification. Expect more of these dismal data for the coming weeks. That said, today’s trader focus was mostly on the overnight ECB decisions. European stocks initially surged in the wake of the brand new purchasing programme but failed to retain those gains rather quickly. For investors, the overarching trading element remains a looming severe recession. Equity losses are relatively limited compared to the previous days though. Some European indices even visited positive area again as US dealers began trading. US stocks trade in the green. The ECB’s PEPP initially pushed German yields more than 10 bps lower but they soon recovered. Headlines suggesting that Germany is ready to ask parliament to declare an emergency as soon as next week might be part of the reason. That is a first step to lift the debt brake and in theory permits further debt financing. The German yield curve bear flattens with yields changing +12 bps (2-yr) to +7 bps (10-yr). We witnessed a similar market reaction for the European periphery: the spread implosion at the start of the dealings was followed by a gradual uptrend. The current balance is still impressive though: -160 bps in Greece, -62 bps in Italy and -40 bps in Portugal and Spain. In contrast, US Treasuries gain today. The belly of the curve outperforms (yields -10/12 bps). This is despite the US Treasury (again) openly mulling the issuance of 50-y bonds (see headline below). The news only caused a temporary uptick in US yields.
King dollar continued its winning streak today against most other major currencies. In EUR/USD however, the move south stopped and reversed around the time the US Federal Reserve announced it would establish dollar swap lines with 9 more central banks (apart from the BoE, ECB, BoC, BoJ and SNB). It is the latest attempt by the central bank to address the great dollar scarcity but only with limited effect so far. EUR/USD went from the low 1.09 area to the low 1.07 before ‘rebounding’ to close to but below 1.08. USD/JPY jumped from 108 to 110 at the time of writing. Sterling reversed some of yesterday’s massive losses that pushed EUR/GBP to levels not seen since the 2016 referendum or even the financial crisis. EUR/GBP’s test of 0.95 failed after which the couple turned south to trade at 0.925. The Bank of England cut rates with 15 bps to 0.1% and increased its bond buying programme with £200 bn to counter the recent tightening of financial conditions. There was no noticeable pound impact however.
News Headlines
The Norwegian central bank announced it will offer additional extraordinary F-loans lasting for up to 12 months which will be fully allotted, to stem the economic fallout from the corona pandemic and tumbling oil prices, the country’s biggest export. The central bank added it’s all set to intervene in FX markets to put a halt to the Norwegian krone’s freefall. The Swiss central bank (SNB) revealed it’s boosting FX interventions to stem the franc’s spurt.
The Chinese government is opening the taps and will unleash $2.8tn yuan to shore up an economy grappling with the prolonged impact of the corona pandemic, Reuters reported. The government seeks to ramp up infrastructure investments backed by local government special bonds as it expects the Chinese economy to shrink for the first time in four decades.
