Markets
The mood across markets was slightly risk-off today until the Fed presented investors with an Eastern gift. The US central bank takes additional actions to provide up to $2.3tn in loans to support the economy. This funding will assist households and employers of all sizes and bolster the ability of state and local governments to deliver critical services during the coronavirus pandemic. More specifically, the Fed will bolster the effectiveness of the Small Business Administration’s Paycheck Protection Program, ensure credit flows to SMEs with the purchase of up to $600bn in loans through the Main Street Lending Program, increase the flow of credit to households and businesses and help state and local governments manage cash flow stresses by establishing a Municipal Liquidity Facility that will offer up to $500bn in lending.
European stock markets and US equity futures turned intraday losses into gains after the announcement with the Euro Stoxx 50 again testing key resistance at 2900 (38% retracement from mid-February to mid-March sell-off). Core bonds were trading with an upward bias, building in some safety ahead of the (uncertain) long weekend. Most European and US markets are closed for Good Friday tomorrow.
The Fed’s action pulled both the Bund and the US Note future lower via the risk correlation. US Treasuries underperform at the moment even as US weekly jobless claims simultaneously showed a “stabilization” at 6.6 million. Please recall that the previous top was only a tenth of that amount, back in 1982. Changes on the US yield curve range between -2.1 bps (5-yr) and +0.7 bps (30-yr). Germany yield currently trade 1.1 bp (2-yr) to 2.3 bps (10-yr) lower with the belly of the curve outperforming the wings. 10-yr yield spreads vs Germany narrow by up to 5 bps.
The Fed’s announcement pushed the trade-weighted dollar below intermediate support (99.77). The dollar weakness is now also visible in EUR/USD with the pair trying to stay above 1.0926 even as the euro faces its own problems. The Eurogroup of finance ministers is still at loggerheads on EU fiscal aid with discussions likely to drag into the long weekend. USD/JPY trades remarkably stable in the high 108 area. EUR/GBP trading is confined to a rather small range around 0.8770. The UK is rumoured to extend lockdown measures. The Bank of England decided to temporarily raise the government’s Ways and Means Facility to unlimited, meaning the government can spend (fiscally) without having to tap the gilt market (monetary financing). UK Gilts outperform Bunds and US Treasuries.
News Headlines
IMF head Georgieva announced a doubling of the institution’s emergency lending capacity from $50 bn to $100 bn. Georgieva said over 90 countries have already requested aid. She expects the coronavirus to hit poorer nations and emerging markets harder, citing capital outflows of more than $100 bn already and plunging commodity prices.
The ECB minutes showed policy makers were concerned about the “severe strains” the corona-related uncertainty was creating in financial markets. They agreed additional monetary support was needed but were divided on the how, with some members preferring the ECB’s OMT programme. Some governing members also expressed concerns about potentially dropping the self-imposed limit on the bond purchases, referring to the bank’s legal mandate.
Canadian employment tanked a mind boggling 1010.7k, dwarfing any other decline in history as the coronavirus forced companies to shut the doors and lay off personnel. Every single sector in the services economy printed job declines with trade, accommodation and education among the hardest hit. The unemployment rate (7.8%) spiked to the highest level since 2010 while the participation rate stumbled 2% points to a 4-decade low (63.50%).
