Markets
Markets haven entered some kind of limbo. Visibility on the spreading of coronavirus and on its impact on the economy remains non-existent. Eco data, including the final EMU PMI’s, confirmed that activity in the euro area is coming to a standstill in an unprecedented rapid way. However, this is no surprise for markets.
A similar reasoning applies to the highly watched monthly US payrolls report. The US economy ‘officially’ lost 701 000 jobs last month (consensus was for a loss of only 100 000). Normally, this kind of deviation should have unsettled markets, but the immediate market reaction has rarely been that small. No one can tell what conclusion to draw going forward. It’s a flying blind for investors at almost all markets.
The-day-to-day sentiment turned cautious today. Uncertainty on the amount and efficiency of the government stimulus packages (e.g. problems with the implementation of the US support for SME’s) only adds to the uncertainty. The debate on the payout of dividends by companies illustrates the lack of visibility on cashflows that is developing across markets and across most parts of economy.
Headlines on a potential OPEC+ production cut gave some ‘hope’ to a very small segment of some markets, but evidently doesn’t help the bigger picture. European equities hover in a directionless ST consolidation pattern (mostly small losses). US equities open little changed.
Core bond markets apparently have found some kind of ST equilibrium. Investors apparently have confidence that CB’s will balance the steep rise in bond issuance that government are flagging, even for the very near future. US yields are changing less than 1 bp. Recent underperformance of German Bunds has halted. German yields are declining marginally, the 30-y the exception to the rule (-4 bps). Intra-EMU yield spreads are widening modestly (Italy + 5bps) as investors await the structure of a coordinated EU package for the crisis. Greece underperforms (+ 18bps).
On the FX market, the trends of the previous days are simply extended. Dollar preference was the name of the game earlier this week and why should this trend change going into the weekend. Awful US eco data are still no factor of significance in this debate. The trade-weighted dollar extends gains north of 100 (100.70). Against the two other majors, the euro today didn’t underperform the yen anymore as was the case over the previous days (EUR/JPY held stable near 117). So, one might conclude that today’s EUR/USD decline (1.08 area) this time was a more USD strength, rather than euro weakness. USD/JPY rebounded to 108.50 area. The outperformance of sterling against the euro also halted today. EUR/GBP returned to the 0.88 area.
News Headlines
OPEC and its allies will hold a video conference on Monday to discuss a global output cut of 10 million bpd. Delegates suggest that Russian producers are willing to join. Brent crude oil prices surged from around $28/b to $34/b. WTA crude prices rose from $24/b to $28/b.
The People Bank of China will cut the reserve ratios for smaller banks in two phases (April 15 and May 15) by a combines 100 bps (to 6%), releasing around Rmb 400bn in lendable funds. The PBOC will also lower the interest rate on banks’ excess reserves at the central bank to 0.35% from 0.72%, pushing down the lower band of the interest rate corridor and normally also interbank lending rates.
Germany’s Der Spiegel magazine reports on the basis of a Finance Ministry preparatory paper that FM Scholz at next week’s Eurogroup will oppose the creation of Coronabonds. That’s no surprise, but Germany seems willing to us the European Stability Mechanism and in addition also to double the ESM funds if required to battle the coronacrisis.
