Markets
The US Federal Reserve is at it once again. They concluded an umpteenth crisis meeting this month with a fresh set of measures aimed at fulfilling its policy goals: maximum employment, (price stability) and promoting the stability of the financial system. First and foremost they suspended the numerical asset purchase target. The US central bank is willing to conduct unlimited asset purchases and extends its scope to include amongst others investment grade corporate bonds. The unlimited purchases suggest a de facto implementation of a sort of yield curve control, avoiding “uncontrolled” swings/increase in US yields like we witnessed since the mid of the month when panic caused investors to liquidate as quickly as possible all available assets in a dash for cash. Next the Fed installs and/or extends facilities to support the flow of credit to (large) employers, consumers, businesses and municipalities. Finally, the US central bank expects to announce soon the establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses. The Fed announcement triggered more market volatility, but in general managed to throw overboard this morning’s pessimism. Weekend news brought little more than a continuation of the bidding process in global lockdown measures, while governments keep downgrading forecast. Germany expects GDP to shrink by 5% this year.
The Fed’s message sends US yields and the dollar lower while stock markets benefit. The impact could have been bigger though given the magnitude of the fresh actions. US yields fall by 2.6 bps (30-yr) to 10.6 bps (7-yr) at the time of writing. The belly of the curve outperforms the wings. German yields decline by 2.1 bps (30-yr) to 3.8 bps (10-yr). 10-yr yield spread changes vs Germany widen by 2 to 7 bps. The enthusiasm on stock markets could haven been more impressive. Main European and US indices trade of their softest intraday levels, but still trade sub-zero. Gold prices rose from $1490/ounce to $1530. The tradeweighted dollar fell from an intraday high just below 103 to the high 101-area currently. EUR/USD rebounded from 1.0670 to 1.08. USD/JPY stabilizes between 110 and 111. EUR/GBP mirrors the move from EUR/USD higher, rising from below 0.92 to 0.93. Potentially of even more interest than the Fed for the FX market is an emergency call which will take place between finance ministers and central bankers of the G20. We highlighted that global dollar strength and weakness in all other currencies apart from a handful (eg EUR/JPY/CHF) might become an issue. Will we get a treat of interventions to prop up ailing currencies and stop the dollar’s appreciation?
News Headlines
The Russian economy could slump with 5 to 10% this year if the country would have to resort to a full lockdown to fight the coronavirus, people familiar with the government forecasts said. That would be similar to the 7.8% contraction in 2009. If able to avoid such a lockdown, growth is expected to shrink 1 to 1.5% as the country is also struggling with an oil (price) war.
The EU antitrust regulators (ECN) will allow suppliers to coordinate the distribution of some products that have become scarce due the coronavirus. The ECN will not intervene against measures put in place to avoid a supply shortage but did issue a warning to companies trying to maximize profits from wanted products (such as sanitizing gel).
US president Trump is said he is considering to already relax some of the ‘social distancing’ guidelines issued just last week. Although they are scheduled to last at least until the end of March, Trump is worried that the campaign would inflict more economic damage than the coronavirus itself.
