Markets
The fall-out of the US oil crisis yesterday still reverberated on global markets today. Contrary to a rather constructive mindset last week, investors are again forced the envisage how the impact of the corona lockdown is destabilizing parts of the economic also financial infrastructure. Negative USD crude oil future prices clearly put the working of the (oil) futures markets in a completely different perspective. The developments in the oil market highlight rising credit risk to this sector. And, who can guarantee that a process similar to what happened in the oil sector won’t affect other sectors in a more or less similar way as the economic corona crisis develops further? Support and bail-out packages from monetary and fiscal authorities supported a rebound risky assets. However, the developments in the US oil sector probably also make investors pondering on the amounts of bail-out funds that are needed to keep the economies afloat and on the efficacity of those programs. In this context, last week’s risk rebound looks at least premature. Sentiment turned outright risk-off. A better than expected ZEW investors sentiment in this respect was probably mostly an illustration of recent weeks’ market optimism rather than anything else. Developments on the oil market also didn’t help to ease uncertainty. After negative price at the closure of the May WTI contract, the June contract also tumbled sharply lower today (currently $ 15.50 p/b). Brent crude price also dropped below $20 p/b. European equity market show losses of up to 3%. US indices opened with losses of 2%, the Nasdaq slightly outperforms. Core bond markets show a standard, risk-off bull flattening. German yields decline between 2.5 bp (2-y) and 6 bp (30-y). Yields on Treasuries are easing between 1.5bp (2-y)  and 9 bp (30-y).  Spreads on intraday EMU bond markets also widened further with Italy (+11 bp) and Greece (+14 bp) underperforming. Aide from the global risk-off, uncertainty on the EU Summit discussing the funding of an EU rescue package also weighs on peripheral spreads. Still, Italy attracted huge investor buying interest for a two part debt offering (€ 10 bln sold of 5-y bonds; € 6 bln sold of 30-y bonds). Combined books were reported above € 110 bln).
On the FX market, the dollar again outperformed with the trade-weighed index rising further above the 100 mark (+0.45%), but the gains could have been bigger given the level of global markets stress The initially , the yen even outperformed but USD/JPY is returning higher in the 107 big figure. EUR./USD (1.0835 area) remains in the defensive, due to the risk-off and as investors await the outcome of the EU summit. The picture remains fragile, but the 1.0770 support area survives, at least for now. EUR/JPY is still holding above the key 116 support  Smaller currencies and commodity related currencies which enjoyed relative calm of late or even rebounded, are also again under pressure. Sterling, today also couldn’t escape from risk-off selling. EUR/GBP jumped back to the 0.88 area.
News Headlines
The ZEW-index, which measures investors’ expectations of the German economy, improved as investors see light at the end of the corona-tunnel. The subseries on the outlook for the next 6 months unexpectedly jumped from -49.5 to 28.2. Nonetheless, the assessment of the current situation became increasingly gloomy (-91.5 from -43.1).
The NBB’s Belgian consumer confidence indicator collapsed 17 points to -26, the steepest drop on record as the coronacrisis shattered confidence. Consumers’ prospects for the economy and unemployment plummeted to historic lows. Belgian households also became gloomier about their financial situation.
Austria continues loosening lockdown measures on May 15 by allowing restaurants to open their doors again and religious services to resume. Schools are due to reopen in a gradual process.
