Markets
Global markets were still in some kind of limbo. On the hand, there are cautious signs of EU and US governments, making preparations for a gradual restart in ‘a not that distant’ future. At the same time, eco data continues to reveal the massive damage of the economic standstill. US firms, to start with banks, are taking precautions for even more difficult times ahead in the second quarter as visibility on a return to normal remains close to non-existent. The room for additional fiscal support/government bail-outs, its efficacity and its potential scope are source of uncertainty, too. The debate on additional funding for the US PPP SME bail-out fund and/or the ongoing debate on fiscal stimulus on an EU level are illustrative in this respect. Regarding the latter, press reports suggest a bigger role for the EU budget could be a way to help circumvent the hot topic on coronabonds to be issued at an EU level. Yesterday, markets saw the glass again half empty. Sentiment stays fragile, but more balance compared to yesterday. A stabilization of the oil price after this week’s decline maybe was a source of comfort, too. Regarding today’s US data, jobless claims printed slightly lower than expected (5 245 000) after an even sharper rise over the previous two weeks. US housing starts declined more than expected (-22.3%). Permits were slightly less negative than feared (-6.8%). The data, in our view, didn’t change the broader picture. European indices erase intraday gains, US stocks opened lower. Core yields are holding rather tight ranges after yesterday’s decline. US yields hover between unchanged for shorter maturities and a 4 bps decline for the 30-y. German yields rise 1 bp at the short end while losing the same at the long end. Intra-EMU spreads eased after a significant widening earlier this week, with Spain/Portugal (-7bp)/Italy (-10 bp) outperforming. At the International Monetary and Financial committee, ECB’s Lagarde kept the door open for more QE as she said that the ECB is “fully prepared to increase the size of its asset purchase programmes and adjust their composition, by as much as necessary and for as long as needed”.
On the FX markets, price swings in the major currency cross rates were rather modest. The dollar was better bid this morning, but the rise ran into resistance as risk-sentiment improved later in the session. The trade-weighted dollar stabilized close to be below the 100 mark. EUR/USD hovered in the upper half of the 1.08 big figure (currently 1.0880) area, painting an indecisive but fragile picture. The narrowing in intra-EMU spreads today didn’t help much. The dollar lost modest ground against the yen, with USD/JPY declining from the 108 tot 107.50 area, but the recent sideways trading pattern remains unchallenged. EUR/GBP also showed a lackluster trading pattern in the lower part of the 0.87 area. Still the UK currency is holding on quite easily to its recent gains even as the debate on a Brexit delay is again coming to the forefront.
News Headlines
Japan’s prime minister Shinzo Abe declared a nationwide state of emergency, imposing more economy-stifling measures beyond only major cities as the coronavirus continues to spread. Abe also announced he plans legislation for cash handouts of ¥10 000 for each of the country’s 120 million citizens.
The Fed’s Kashkari noted large US banks should raise $200bn in capital and halt dividend payouts as a preventive measure to ensure the sector can bolster the economy over a broad range of (worst case) coronavirus scenarios as the recovery path from the will likely be a long, hard and bumpy road with drastic tickle-down effects on banks.
ECB president Lagarde announced the central bank is open to adjusting its entire policy toolkit in its combat against the coronacrisis including changing the size and composition of its bond buying programme. In addition, the ECB agreed swap line arrangements with some EU central banks to provide euro liquidity and is open to exploring a new special drawing rights (SDR) allocation for all IMF members.
