Markets
Today, global markets finally entered calmer waters. Some comments on financial newswires even labeled it a ‘risk-rebound’. The reason for the improvement in sentiment might be multilateral. Central banks and fiscal authorities over the previous days put in place a long series of measures. It is impossible to assess the efficacity in solving this unprecedented crisis. Even so, the measures at least contributed to an easing of tensions in some parts of the markets. For example, the additional ECB QE helped to address the widening of intra-EMU spreads. We also see a good case for some more neutral investor positioning going into the weekend. Will global (monetary) authorities use the weekend to take major coordinated action, e.g. to address the strength of the dollar/the issue of USD liquidity? Nothing is sure, but much is possible. The Fed in cooperation with other major CBs stepped up the frequency of USD liquidity swaps to daily from weekly. There were also some other pointers of easing markets stress, e.g. oil rebounding off its recent lows. European equity indices currently show (albeit fragile) gains of up to 4-5%. US equities also try to rebound as price action is ‘complicated’ by the expiry of options and future contracts. In current, unconventional times it is not always easy to interpret developments in the bond and interest rate markets. However, today, the decline in German and US yields (especially at the long end of the curve) was a pointer for easing of markets stress. Investors feel less inclined to sell these (perceived) ‘more risky’ bonds with longer maturities. US yields are declining by 8 bps (2-y) to 15 bps (30-y). The German yield curve bull flattens with the 2-y yield rising marginally (+2 bps) but yields of longer maturities declining up to 11 bps (10 & 30 y). This decline in (German) yields this time occurs ‘despite’ headlines that the EU is considering funding at a supranational level of which the cost will evidently also have to be borne by Germany. Germany is reported to prepare a big support program for its businesses too. Intra-EMU yields spreads mostly are easing slightly further. However, this can be seen as a constructive development after yesterday’s substantial post-ECB narrowing. Italian spreads for example narrowed another 3 bps, even as economic forecasts for the country are scaled back in a very profound way by several forecasters (e.g. Italian Treasury assumes a 3.0% decline in 2020 GDP, according to sources).
The relative calm is also visible in global FX markets. At least, the dollar doesn’t rise any further. That said, it is too early to call this an USD-correction. USD/JPY is holding well above 110 (currently 110.75 area). EUR/USD tried a cautious comeback this morning but returned back to the 1.07 area. The recent USD top in most major USD cross rates remains within reach. Most smaller currencies (e.g. Scandies) are trading off the sell-off low. After an awful performance this week, sterling today even is an outperformer with EUR/GBP heading lower in the 0.90 big figure.
News Headlines
The Belgian government drafted new measures to support businesses and employees hit by the coronacrisis. The temporary unemployed which already comprises as many as 671K people, will receive every month an additional net amount of €150 on top of their unemployment benefit. Moreover, citizens and businesses will get reprieve on paying taxes. The measures taken so far cost this year’s budget between €8-10bn, the Budget Secretary estimated.
The German government reportedly wants to set up €500bn rescue fund to support businesses suffering payment difficulties by the coronacrisis, which will be able to guarantee liabilities or even inject capital when needed, according to Der Spiegel. The government seeks to prevent the economy from becoming a rout, even more so now the country mulls imposing a nationwide lockdown after Bavaria became the first state in Germany to enforce severe restrictions on citizens in an effort to contain the spread of the virus.
