Markets
Markets started the Eastern-shortened trading week on a positive note. Investors interpreted the lack of weekend news as good news. US President Trump saw early signs of stabilization in the US virus outbreak, but we’d take his comments with a pinch of salt.
Possibly more important is the slow build-up towards an exit strategy from the tightening global lockdown wave. Last week’s decision from the German government to allow some seasonal workers into the country was the earliest tell. The FT this weekend reported on several EMU countries setting special committees to set a roadmap for a return to normal. The third, and most concrete action, followed today when the Austrian government set a timetable for opening up its economy and easing social distancing measures between mid-April and the end of June.
European stock markets currently gain 3% to 5%, but we add that the big move occurred at the European opening bell. Core bonds face limited selling pressure with US Treasuries underperforming German Bunds. The US Treasury starts its mid-month refinancing operation tonight with a $40bn 3-yr Note auction. The combined auction sizes of this week’s supply will be $5bn larger as usual, with the Treasury starting to up issuance to pay for the fiscal bill. The US yield curve bear steepens with yields rising by 1.9 bps (2-yr) to 5.9 bps (30-yr). German yields add between 0.2 bps (5-yr) and 3.1 bps (30-yr). 10-yr yield spread changes vs Germany narrow by 4 bps with Greece (-7 bps) outperforming. Ireland (May/2027) and Slovenia (multibranch) announced the near term launch of syndicated deals (likely tomorrow).
Brent crude oil prices stabilize around $33/barrel. Key players in production talks didn’t reach a deal yet, but will continue discussion at a “near term” G20 meeting for energy ministers.
EUR/USD extends last week’s downhill trend. The better risk environment doesn’t translate into profit taking on USD long positions yet. EUR/USD currently changes hands in the high 1.07 area. Euro investors keep in mind tomorrow’s conference call between European ministers of Finance. Consensus has been building towards the use of existing schemes like the European Stability Mechanism to provide financial aid to countries in need. The creation of new entities or setting up a framework for joint EU debt issuance both take too long and lack support of Northern States.
USD/JPY rises from around 108.50 to 109. Japanese PM Abe declared a state of emergency in seven prefectures and a larger-than-expected stimulus package (nearly $1tn). EUR/GBP mirrored the move lower of EUR/USD in otherwise dull trading conditions. The pair currently moves around 0.8780.
News Headlines
Three weeks after Austria ordered school, restaurants and shops to close because of the coronavirus, the country will lift some of the restrictions. Small retailers, hardware and gardening shops are allowed to reopen after Easter with all other stores, malls and hairdressers to follow in May provided the contagion does not pick up. Schools, restaurants and hotels will probably remain closed until mid-May while large gatherings will be allowed end-June at the earliest.
The Swedish government is seeking to expand its executive powers for three months in order to fight the spread of the coronavirus. Sweden took rather modest steps in containing Covid-19, saying it lacks a legal mandate to react more thoroughly to the pandemic. Fears of a quick deterioration as seen elsewhere in the world mount however.
Belgium’s flight carrier extended the suspension of flights until at least May 15. That’s four weeks longer than initially envisaged. The company cited “low to no demand” because of the travel restrictions imposed. The temporary short-time work scheme for its 4 200 work force will be prolonged accordingly.
