- Rates: German 10-yr yield tests -0.15 resistance
Peripheral bonds rallied yesterday after the ECB’s additional €750bn QE announcement, but ended off their best intraday levels. The German 10-yr yield tested -0.15% resistance as the German government is slowly moving in the direction of loosening fiscal rules. Will we get a G7 weekend response to ease short term market nerves? - Currencies: USD rally taking a breather going into the weekend
Yesterday, the dollar ascent continued unabatedly. Even so, some individual CBs of smaller countries indicated they are ready to intervene to address decline of their currency. This morning, the dollar is coming off yesterday’s peak levels. Maybe markets are turning a more cautious on the USD as they ponder the chance of coordinated action e.g. during the weekend.
The Sunrise Headlines
- US stocks advanced in a bumpy trading session as global authorities laid out economic and financial measures. The Nasdaq outperformed (2.3%). Asian markets follow suit, jumping up to 7.24% (South Korea). Japan is closed.
- WTI Oil surged 24% yesterday, the fastest pace on record, after US president Trump said he may intervene in the price war between the Russians and the Saudis that rocked crude markets amid slacked demand.
- The governor of California issued an emergency order requiring its 40mln residents to stay indoors, restricting non-essential movements to stem the spread of the coronavirus as the number of cases continue to jump.
- The Riksbank confirmed its $60bn swap facility with the Fed and decides to relax bank lending rules to boost credit supply to the economy. The central bank also plans to widen the scope of its bond-buying programme with commercial paper.
- The RBNZ rolled out a term auction facility (terms up to 12 mo), confirmed the $30bn swap line with the Fed and said it’s providing liquidity in the FX swap market to ensure funding can be accessed at rates near the official cash rate.
- The Australian government delayed its budget by 5 mo as it seeks to ramp its response to the coronacrisis, lifting the debt ceiling from A$ 600bn to A$ 850bn. It also joined the QE club with the RBA buying A$ 5bn in govies in a first round.
- Today’s economic calendar contains only secondary, outdated data. UK Chancellor Rishi Sunak unveils emergency policies today to combat the coronacrisis which may include a.o. worker subsidies and an income tax freeze
Currencies: USD Rally Taking A Breather Going Into The Weekend
USD ascent taking a breather
Yesterday, the dominance of ‘King’ dollar persisted. The trade-weighted dollar closed at 102.75, nearing the 2017 top. From a ‘dynamic’ point of view the gain was even more impressive with a daily gain of about 2.0% and an impressive 5.0% rise since the start of the week. The hunt for cash remained the dominant factor. At the same time other central banks including the ECB, the BoE, the RBA and others creating more excess liquidity didn’t stop this process. EUR/USD closed below 1.07, even as the ECB PEPP brought calm to the intra-EMU bond markets. USD/JPY also closed well above the 110 mark. Smaller, less liquid currencies remained under pressure, but there were first indications that CBs (Norway and others) were preparing interventions.
Overnight, it looks that (equity) markets are entering some calmer waters. This relative calm is also visible on FX markets. The dollar is easing off yesterday’s peak levels. The rebound in the likes of the Korean won (FX swap line with US) is even quite impressive. The yuan (USD/CNY 7.07) also rebounds as the PBOC left its Loan Prime Rate unchanged. Japanese markets are closed but USD/JPY is also easing. EUR/USD (1.0750 area) is rebounding off yesterday’s low.
Going into the weekend, headlines on the spreading of the corona virus and on the negative impact on the global (and US) economy won’t stop. However, markets are pondering whether the announcements of some individual central banks of smaller countries to address the sell-off in FX markets could be a harbinger of more coordinated action in the (near?) future. There is not enough evidence that this will take place. Even so, the combination of some technical position squaring at the end of the week and the feeling that ‘some’ action to address the issue of USD strength/liquidity is possible, might slow the ascent of the dollar going onto the weekend.
Yesterday, sterling trade was extremely volatile with EUR/GBP initially nearing the 0.95 area just to drop back to the 0.9125 area intraday (close 0.9308). The move was mainly driven by global trends. During the day, the BoE eased policy further (0.1% base rate, QE) but we didn’t see a clear direct link to the performance of sterling. With sterling a main victim of this week’s volatility, a calming of global sentiment going into the weekend might also cause some sterling short covering.
USD trade-weighted (DXY): correction on recent rally going into the weekend. Coordinated action to come?
