Market movers today
Focus continues to be on the daily developments in the COVID-19 virus spread. We are finally seeing more positive developments, with indications that the worst is seemingly behind us for now. As such, focus is turning to the tough task of reopening the economies without a resurgence in infections, see also Harr’s view: Recovery or prolonged crisis, 19 April.
Later this week, focus turns to the April PMI, which will be the first gauge in Europe that could provide some indication of the severity of the setback. Similarly, US jobless claims and US PMI on Thursday will be closely monitored.
Also on Thursday, the EU council will meet to discuss the EU policy responses, where notably a rescue fund or common debt issuance will be discussed.
Selected market news
On the initiative of the European Central Bank, an idea is being floated within EU circles to create a bank for non-performing loans. This would be intended to improve the overall quality of European banks’ balance sheets. According to the FT, the idea faces “stiff competition” within the European Commission. It still seems early days to tell if this is a political negotiation tactic or if the proposal is dead on arrival but it does appear to draw the same line of division as always between creditor and debtor nations.
It appears yet another fiscal package is coming in the US at the size of roughly 2% of GDP, with both democrats and republications reportedly on board for a deal. This package is intended as a loan programme to small businesses and some healthcare support.
Over the weekend, the Danish parliament agreed to add DKK30bn in new expenses to the already steep funding need. However, the most interesting news was that the ceiling on corporations’ tax account has been suspended until 1 April 2021. Corporations earn 0.00% on their tax account, which makes this an attractive alternative to bank deposits, for example (around -0.60%) or T-bills (-0.40%) for corporations with a liquidity surplus. The finance ministry argued among other things that it helps strengthen the government’s liquidity and reduce the borrowing need ; hence, indirectly admitting it faces an uphill battle to fund more than DKK250bn over the coming months. However, it will not make it easier to sell T-bills at the current yield, since it will be less attractive for corporations to buy. If corporations with a liquidity surplus use their tax account to a greater extent it will reduce the government’s funding need and lower the potential for a sharp rise in excess liquidity over the coming months. It could also lead to tight DKK excess liquidity later in the year and in Q1 next year. We emphasise the uncertainty about these effects.
WTI crude is down again, by 16%, and is now trading just above $15 – well below the $20 mark – though some of this is likely related to rolling from the May to June contract and thus technical in nature. It is still primarily the front-end contract(s) that are trading heavy, as longer-dated oil (e.g. by year-end) does still indeed appear stable. Nonetheless, EUR/NOK is up by nearly 0.70% this morning to 11.30 and RUB is also weaker.
