Markets
Labour market data today show the devastating impact from global lockdown measures to try to contain the outbreak of the coronavirus. The number of French employees on partial employment rose to 4 million, 20% of all French private sector employees. The French government originally earmarked €8.5bn over two months to cover wages of temporarily laid off workers, but that seems to be a way too low amount.
The Spanish number of unemployed people rose by 302.3k in March, the biggest monthly increase on record (overtaking 2008-2009 financial crisis and 2011-2012 sovereign debt crisis). Spain already has the second highest unemployment rate in Europe (13.8%). Additionally, the coronacrisis occurs when you normally see the highest volume of hiring in the country (Q2).
Finally, US weekly jobless claims exploded for a second week running. They nearly doubled from 3307k to 6648k. As a reminder: the previous historic top was around 670k, one tenth of the current count. US states reported that shutdowns continued to affect the service sector, but also healthcare and social assistance, manufacturing, wholesale trade and construction industries as well.
Market sentiment soured after the US release. US equity futures and European stock markets threw away intraday gains. The EuroStoxx 50 lost short term support at 2658 after last week failing to take out 38% retracement (2926) of the mid-February to mid-March sell-off. It further highlights that the short term corrective risk rebound is running out of steam.
The reaction on core bond markets is very modest. Daily changes on the US yield curve range between +0.7 bps (10-yr) and +1.4 bps (2-yr). Changes on the German yield curve vary between -2.3 bps (30-yr) and +2 bps (10-yr). Peripheral yield spreads vs Germany widen by around 2 bps with Portugal and Italy (-4 bps) underperforming).
US weekly jobless claims proved to be the straw that broke EUR/USD’s back. The pair dropped below minor support around 1.09 to change hands around 1.0870 currently. The dollar does once again proves its status of place-to-be in case of risk aversion, even if the nature of the data is of course American. We note that the euro has its own problems to tackle of course. Apart from the mentioned record unemployed, the German government today warned that the economic downturn will be at least as severe as the one witnessed in 2008/2009 (-5%). The trade-weighted dollar recaptured minor resistance around 100. EUR/GBP mirrors the move of EUR/USD lower and returns below the 0.88 mark.
News Headlines
Oil prices rallied (WTI topped $22.60 p/b and Brent $27.88 p/b), buoyed by US president Trump saying he expects the Russians to soon reach a deal with Saudi Arabia to put their oil price war to bed, and China unveiling plans to snatch up oil for its stockpiles taking advantage of the unprecedented price crash. However, oil prices surrender some gains on gloomy US labour market data.
The ECB is postponing its overarching strategic review as the central bank shifts its full focus to combatting the fallout from the corona-pandemic. The big policy rethink aimed at reconsidering the long undershot inflation target that defines the ECB’s price-stability mandate along with the effectiveness and side-effects of the central bank’s toolkit, is pushed by 6 months to mid-2021.
Fitch assumes a deep global recession in 2020 in its baseline scenario as the widespread coronavirus pandemic has put the world to a standstill. The rating agency cut its GDP forecasts and expects the global economy to contract by 1.9% this year. Fitch sees the US, eurozone and UK economy down by 3.3%, 4.2% and 3.9% respectively. It also paints a grim picture of Asian tiger China whose tentative economic recovery is seen curtailed by a global recession, with growth predicted to be below 2%.
