Markets

Today is the final session of what only can be labelled as an historic quarter. Price action across different markets again provided quite some mixed signals. Eco data, even the ones that already capture at least part of the corona era, remain difficult to interpret. This was also the case for the much better than expected Chinese PMI’s reported this morning. After a mixed session in Asia, the open of European equities could be labeled ‘constructive’. The news flow on containing the corona virus in Europe was also mixed, with Italy (cautious signs of improvement) and Spain (record high number of casualties) showing a different picture. Whatever the driver, the news flow was not enough to reinforce investors optimism going into US trading.

The Fed announced a new repo facility with other central banks. Under the facility, foreign CB’s can obtain US dollars against the exchange of US Treasuries. The move can be seen as other (‘coordinated’) steps to address the need for US liquidity outside the US. The facility will be active from 6 April. In theory, broader availability of USD liquidity should give some comfort to markets of risky assets, but the direct impact remained limited for now.

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European equities hover near unchanged despite a positive open. US equites open with modest losses. Core US and European yields show a rather calm, sideways intraday trading pattern. In theory, the new Fed repo facility indirectly could avoid more forced selling of US treasuries. However, this is probably no decisive factor for trading in US Treasuries right now. The US yield curve shows moderate changes between more or less unchanged yields for the 2-y and 30-y. The 5-10-y sector outperforms with yields declining about 3bp. German yields decline marginally (1-2 bp).

On the intra-EMU bond markets, spreads traded almost unchanged. This is interesting as several EMU governments announce a sharp rise in upcoming bond issuance to finance higher deficits/and measures to address the impact of the corona crisis. In this respect, Italy in total sold € 8.5 bln bonds over several maturities (existing bond lines). The bid-to-cover rates were slightly higher compared to previous sales, indicating that the ECB’s commitment to buy bonds is able to stabilize this market, despite frictions between EMU governments on the structure of fiscal support at an E(M)U level. Belgium also successfully sold a new 7-y OLO via syndication (cf infra).

On the FX market, the dollar extended yesterday’s rebound. Mixed signals from risky assets and investors preserving their USD liquidity at the quarter end, kept the dollar in demand. The Fed announcing a new repo facility for foreign central banks was also no game-changer for FX trading today. The trade-weighted dollar is trading off the intraday highs (currently near 99.60). EUR/USD shows a similar picture (currently near 1.0960). The decline (rise of the dollar) still develops in an orderly fashion, but a further rise of the dollar after end of month flows have finished could be a sign that global market confidence (also out side the FX market) remains fragile. Or will poor US eco data later this week become a factor of significance for USD trading? This week’s outperformance of sterling also continues with EUR/GBP further drifting below 0.90 (currently 0.8835 area).

News Headlines

The Belgian Debt Agency broke a record for demand in a syndicated sale of sovereign bonds with a 7yr tenor (Oct 22, 2027). Orderbooks totaled €57bn for the €8bn debt offering and the bond was priced 11 bps above mid-swap rates.

The Norwegian central bank is stepping up the pace of its daily purchase of crowns to 2bn per day from 1.6bn crowns earlier to put a halt to the currency’s sharp fall amid a widespread coronacrisis and a crash in oil prices. The Norges Bank is also extending the period of its extraordinary F-loans to banks to the end of May.

The German government is in talks with the EU on granting 100% credit guarantees – exceeding the 90% guarantees normally permitted by the bloc –  to companies hit by the coronacrisis on a case-by-case basis.

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