Asian trading settings set the tone for dull European dealings as well. The Gilead progress in a clinical trial to battle the coronavirus and the US administration’s phased guidelines to exit the lockdown outweighed the historic Chinese GDP setback and awful retail/investment/production data. European stock markets rallied around 3% in the opening with core bonds facing selling pressure. Stocks tried to extend intraday gains, but their attempt failed. Core bonds trade well off their worst intraday levels. We have the impression that the risk rebound could run into trouble during today’s US dealings. Biotech specialists and analysts question the boasted drug breakthrough while new guidelines do offer a way out, but don’t mean a rapid return to business as usual. US yield decline by 1 bp to 2 bps at the time of writing. German Bundesbank Weidmann stressed the European north/south divide by stressing the need to focus on reducing debt ratios once governments have dealt with the coronacrisis. Changes on the German yield curve range between -0.4 bps and +0.7 bps, in a small steepening move. 10-yr yield spread changes vs Germany narrow by up to 3 bps. The Italian Finance Ministry announced that it will sell a new series of retail bonds (BTP Italia) targeted to support the health system and economic recovery.

The (trade-weighted) dollar (DXY) showed some volatility today and ignored the recent correlation where the greenback profited during risk aversion and fell prey to profit taking during risk rallies. The intraday trading range of DXY matched yesterday’s, flipping sides around the 100 big figure. The same intraday dollar U-turn was visible in EUR/USD. After testing yesterday’s low around 1.0820, the pair turned higher even if risk sentiment shows signs of faltering. EUR/GBP trading was erratic today and limited to an extremely narrow corridor of roughly 0.8690 and 0.8710.

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News Headlines

China pledged more support for its economy by making monetary policy more flexible and fiscal policy more effective, the politburo said today. It could come in the form of lower reserve requirement ratios, interest rate cuts and re-lending. The announcement came after China published its first growth contraction since publication started in the early ‘90s.

Spain plans to roll out a basic income scheme for the poorest households to help them withstand the shock of the coronavirus. The proposal will include incentives to find a new job and should be approved by cabinet in May, Social Security Minister Escriva said. The amount paid per month has yet to be decided. Spain’s unemployment skyrocketed in March as a result of the stringent quarantine measures.

European banks are to report relatively small increases in loan loss provisions compared to their US counterparts (where WS’s biggest collectively take a $25 bn hit). Regulators encourage a flexible application of (accounting) rules to avoid such a dramatic spike which would force lenders to set aside more capital and in turn hamper credit flows to the real economy.

Il Sole 24 Ore reported that the Italian government aims to approve another €70 bn fiscal package on Monday after ironing out the last details with local governments today. The spending measures could include some €25 bn for unemployment coverage and income support. Parliamentary voting is scheduled for Wednesday and Friday.


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