Markets
Headlines on the COVID-19 virus have been whipsawing markets all week and are likely to do so for quite some time. Investor optimism reigned yesterday in the wake of the US’s fiscal – though limited – response to support its economy. Asian markets initially surfed along the risk-on wave but realism returned already at the start of European dealings. EMU stocks opened in green but gains faded in the blink of an eye. Losses amount to more than 2%. US stocks tank 2% at opening with losses building. Core bonds surge with UST’s outperforming Bunds spectacularly as market speculation on additional Fed rate cuts continue to build. Investors currently completely discount a 50 bps rate cut on the March 18 meeting. The US yield curve bull steepens with yields plunging -13 bps (2-yr) to -11 bps (30-yr). The 2-y yield is approaching the 2016 low. The German yield curve bull flattens with yields -3 bps lower at the long end. Peripheral spreads widen 10 (Portugal) to 11 bps in Greece and Italy. The latter country is holding a meeting today to decide over potential fiscal measures. Finance ministry undersecretary Villarosa asked the minister for a package worth €20 bn but a senior lawmaker hinted at a much lower amount (€5 bn). The substantial EMU/US spread narrowing again bode well for EUR/USD. Dollar weakness pushed the pair towards 1.12 but that test failed at the time of writing. EUR/USD is changing hands at 1.1187 currently, up from 1.113 at opening. The Japanese yen advances; USD/JPY dips below 107 (106.8) – the weakest level since October 2019. EUR/JPY is holding remarkably well in the mid 119/120 area.
Initial sterling strength soon petered out as risk-off returned to markets. Contradictory statements following brexit negotiations from the UK (“talks have been constructive”) and the EU (“there are many serious divergences with the UK”) clearly provide no support for sterling either. EUR/GBP reversed declines at the start of European dealings to trade in the upper 0.86/87 half (around 0.867). Cable however rose above 1.29 amid broad dollar weakness. Moves are limited to very narrow trading ranges however. Sterling investors await more clues from the government’s spending plans next week (March 11). On a related note, UK PM Johnson said the budget will include measures to help business but stopped short of providing concrete details.
News Headlines
At a meeting in Vienna, OPEC agreed to cut oil production by an additional 1.5 mln barrels per day. OPEC is prepared to reduce production by 1 mln bpd. Russia and other non-OPEC countries have to reduce production by 500 000 bpd in order for the agreement to become effective. Russia wasn’t present at the meeting and until now was reluctant on a further production cut. A limited rise in the oil price after the announcement was soon reversed. Markets are not convinced that the agreement will be enough to counterbalance the slump in demand.
The leader of Ireland’s Fianna Fail party said that ‘it’s decision time’ for the Fine Gael party. They should decide whether or not to start negotiations on the forming of a new government. The comments today came after the two parties met for a one-day policy exchange yesterday. Until now, Fine Gael party of PM Varadkar indicated that it preferred going into opposition.
Russian president Putin and Turkish president Erdogan started talks in Moscow. Both parties are trying to reduce tensions in their relationship as they have different interests related to the conflict in the Syrian province of Idlib. Russia supports Syrian leader Bashar al-Assad as he tries to regain control of the province. Turkey is said that it wants to take control of the area to resettle refugees.
