Global markets enjoyed a second consecutive risk-on session. It is at least a bit remarkable that equities are able to build on yesterday’s strong gains. A 7% jump (WS) often contains the risk of investors using it as an opportunity to reduce undesirable exposure at better prices. This might especially be the case as there was not much hard ‘new’ news to support the price action.

Investors see diffuse signs of the ‘coronavirus curve’ flattening and hope that this will accelerate the debate on a (probably long drawn-out) exit process in a not that distant future. Those headlines remain vague and mostly contain little specific information on the time/restart of activity and on a detailed path further out. Still, for now, it is sufficient to support a continuation of yesterday’s risk-rebound. Most European equity markets are showing gains between 2% and 4%.

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The traditional negative correlation with bond markets stands. The US yield curve bear steepens with yields rising between 3 bps (2-y) and 8 bps (10-y). The German yield curve shows a similar move with interest rates rising between 1.3 bps (2-y) and 8.5 bps (30-y).

The prospect that the meeting of the EU Finance Ministers held this afternoon, might lead to some, albeit soft/modest funding of support measures at an EU level, might have been an additional negative for Bunds. Intra-EMU spreads versus Germany mostly show a modest tightening with Italy underperforming (unchanged) and Greece narrowing (-15 bp).

For once, price action on FX markets also developed according to a classic risk-on scenario. The dollar ceded ground across the board. The reversal of recent demand for USD liquidity triggered a somewhat ‘unusual’ intraday stabilization of USD/JPY (109 area) in a positive risk context. EUR/USD succeeded a meaningful, dynamic, intraday rebound, regaining the 1.09 barrier. Markets hoping for meaningful EU crisis action from the EU finance ministers maybe additionally supported the euro. The likes of the Aussie dollar also jumped sharply higher from AUD/USD <0.61 this morning to + 0.62 this afternoon.

There was also a broad revival of the ‘smaller currencies’. This was in the first place the flipside of less demand for hard USD liquidity. At the same time, several smaller CB’s recently indicated that FX weakness was getting more weight in their assessment and that they were prepared to adapt policy if necessary. In this respect, the National Bank of Hungary selectively raising some ‘technical’ interest rates to support the currency can be seen as a good illustration.

In this context, EUR/GBP stabilizing in the 0.88+ area can be considered as a bit ‘atypical’, but the UK currency already drew an advance on the current global move last week.

News Headlines

US NFIB Small Business Optimism dropped the most on record in March, from 104.5 to 96.4. It’s the weakest outcome since October 2016. The component measuring expected business conditions six months from now showed a similar drop. The report highlighted amongst others difficulties for submitting applications for loans provided through the federal stimulus program.

Hungarian central bank left the base rate (0.9%), one-week deposit rate (0.9%) and overnight deposit rate (-0.05%) unchanged, while raising the overnight and one-week collateralized lending rates by 95 basis points to 1.85%. The MNB added that the one-week deposit rate could deviate within the interest rate corridor from now on. The move is probably aimed to raise Hungarian money market rates and prop up the currency. EUR/HUF falls from 364 to 357 currently. In order to flatten the Hungarian yield curve, the MNB simultaneously decided to start with government bond purchases, to relaunch its mortgage bond purchase programme and to expand eligibility rules for its corporate bond buying plan. The central bank will also scrap its crowded-out liquidity goal and launch a funding for growth scheme. It’s the MNB’s aim to sterilize loan funds via a preferential deposit facility, offering 4%.


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