After a back-to-back rise in stocks, Europe kicked off trading on a cautious note today. Equities slipped to an intraday low of as much as 3% but erased most if not all of the losses going into US dealings. WS opened in solid green (3-4%) as investors feel comforted by the Senate approving the massive stimulus bill. An unprecedented surge in US weekly jobless claims to a staggering 3 283 000 triggered some headlines but was set aside with ease. It is difficult to draw conclusions from today’s moves in rates markets. Core bonds gained during the risk-off European trading hours, consistent with “traditional” market correlations. The upleg extended even as the risk environment improved as US investors joined however. A glimpse at the dollar moves (see text below) reveals there might be some “general” asset buying, bonds included, as panic bids for the greenback ease. UST’s underperform the German Bund. US yields decline 4 bps (2-yr) to 5 bps (10-yr). The German yield curve bull flattens with yield changes varying from -3 bps (2-yr) to -9 bps (10yr). Peripheral spreads tank in Spain (-16 bps) and Italy (-11 bps). Greece is the outright outperformer (-62 bps). The ECB announced it started its PEPP bond buying program today under which it exceptionally also buys Greek debt. In FX markets we see the dollar extending this week’s losing streak to most majors. The trade-weighted greenback (DXY) declined from 101 towards the 100 barrier. EUR/USD capped intermediate resistance near 1.09. Next area of significance would be near 1.10. USD/JPY traded stable near recent highs over the past days but is losing ground today from the low 111 area to 110 at the time of writing.

The Bank of England held its March policy meeting today. The regular meeting followed on an emergency intervention on March 19 at which the UK central bank already came to action. It slashed rates to 0.1% back then, said it will expand its brand new SME funding scheme (introduced during another emergency meeting earlier in March) and announced additional (government and corporate) bond buying worth £200 bln. The latter proved effective in capping the substantial rise in UK gilt yields which the central bank found to be hampering the pass-through of monetary policy. None of the aforementioned parameters were altered today. The Bank of England is likely to await first key economic data first before engaging in additional stimulus. The central bank did add though that it stands ready to respond further (expansion of asset purchases) should circumstances (i.e. unwarranted financial tightening) require to do so. The market reaction was fairly muted. The 10y UK gilt yield slips a few basis points probably as a reaction to the BoE’s pledge to act further if needed. Sterling ekes out gains both against the euro and the dollar though moves are relatively small compared to the previous days. EUR/GBP finds its way south near 0.912 (from 0.92 early this morning). Cable is flirting with the 1.20 level.

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At a regular policy meeting today, the Czech national Bank further reduced its policy rate by 0.75% bringing it to 1.0%. In view of the extraordinary nature of the present situation, the CNB said it is prepared to lower interest rates further and adopt measures to address any potential liquidity problems in the Czech financial sector. At the same time, the CNB emphasizes it stands ready to react to any excessive exchange rate fluctuations using its instruments, in line with the managed float exchange rate regime.

According to sources, it isn’t that sure that the ECB will deploy its OMT emergency program as a tool to fight the coronacrisis. The ECB is said to consider the new pandemic purchases scheme as more powerful/adequate. OMT is said to be designed for individual countries, not the whole bloc. Even so, officials still might discuss the option at high level talks scheduled today and tomorrow.


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