Trading was mainly technical and sentiment driven as markets await a heavy calendar by the end of the week. Fed Powell reassured markets during several interviews over the weekend, saying that the central bank still has plenty of ammo left. His comments and the continued lifting of quarantine measures lured investors into risky assets while at the same time dampening appetite for safe havens. A second jolt of market optimism came after biotech company Moderna reported its experimental vaccine yielded promising results in an early clinical human trial. During the interviews, Powell also said a complete recovery probably awaits the development of a vaccine. The news thus triggered a second knee-jerk upleg in stocks, which now trade 3 to 4% higher in the EMU and open up to 3% higher on Wall Street. Core bonds lose ground today with USTs underperforming the German Bund. A sharp increase in oil prices (up to 10% in WTI) added to the decline. The US yield curve bear steepens with yields up 2 bp (2-yr) to 5 bps (30-yr). German yields add 3 bps at the long end of the curve. Peripheral spreads to the core narrow with Italy (-9 bps) and Greece (-7 bps) outperforming.
EUR/USD traded heavy during early European dealings despite the upbeat sentiment. The couple’s test of 1.08 failed quite soon, setting a technical recovery in motion. Moderna’s press release accelerated the move north, pushing EUR/USD towards 1.086 at the time of writing, marginally up from 1.082 this morning. The trade-weighted dollar (DXY) is headed towards the 100 lever. Losses for the greenback are modest nonetheless given the size in stock gains. USD/JPY eked out gains in a classic risk-on move with the combo trading at 107.4. The pound sterling shrugged off early losses in the wake of the Bank of England chief economist’s comments suggesting they are at least looking into the topic of negative rates. EUR/GBP 0.89 support (down from 0.895) is being tested as we speak but holds for now. Cable snaps a five-day losing streak and trades slightly higher in the 1.217 area (up from 1.21).
The Belgian debt agency tapped three OLO’s today for a combined €3bn, the maximum amount on offer. They sold €0.85bn of OLO 89 (0.1% Jun2030), €1.5bn of OLO 75 (1% Jun2031) and €0.65bn of OLO 88 (1.7% Jun2050). The total auction bid cover was a solid 2.14. The debt agency now raised €29.36bn this year, representing 68.5% of this year’s corona-increased €42.85bn OLO funding needed.
The German Bundesbank in its monthly bulletin states the economy is in an accelerated tailspin in Q2. Timely high-frequency indicators remain subdued thus far in the services sector and industry. The construction sector appears to be comparatively robust. Fiscal policy is providing stimuli. There is currently much to suggest that macro-economic developments will pick up again over the course of Q2 as a result of the easing of lockdown measures and that a recovery will ensue.
National regulators of France, Italy, Spain, Austria, Greece and Belgium lifted short selling bans on stocks and bonds as markets progressively normalized. Lower market volatility, the Easter market bounce, increased visibility for many listed companies on the Covid-19 impact, a steady decline in net short positions, a decrease in Coronavirus cases and the phasing out of lockdown measures all contributed to regulators’ decisions.