Markets
The obvious place to look at for clues for general trading today was the oil market. There’s plenty of oil, but nowhere to store it. The oil price tail spin initially continued today, but soon bottomed at multiyear lows. The oil industry’s intensive lobbying to get access to government/central bank money might be a soothing factor. As US trading gets going, oil prices even show tentative signs of picking up. Contrary to yesterday, intraday oil price dynamics didn’t impact other markets. European stock markets opened positive, but failed to really build momentum. The EuroStoxx 50 this way does remain above first support at 2792. Core bonds faced selling pressure as market stress eased. German Bunds underperform US Treasuries. The US yield curve bear steepens with yields rising by 0.2 bps (2-yr) to 3.7 bps (30-yr). German yields add 1.3 bps (2-yr) to 4 bps (10-yr). 10-yr yield spreads vs Germany widen by 12 bps for Portugal and by 14 bps for Spain. The Spanish move is mainly supply-related with the local Treasury raising €15bn via a new 10-yr syndicated bonds. The deal met with huge demand (nearly €100bn) in a copy of yesterday’s Italian double deal. The Italian government’s forecast of a budget deficit in excess of 10% of GDP this year highlights the necessity to be active in the sovereign debt market. The double whammy of a double digit growth hit and a double digit deficit will send the debt ratio spiraling from 135% of GDP to 150-155% of GDP. This exponential path could serve as blueprint for the following years as well.
EUR/USD trading was again confined to an extremely thin range in the 1.08 big figure. Disagreement on an EU level on coordinating fiscal support to tackle the current health crisis, is holding back the single currency. Tomorrow’s PMI’s (April) could be horror reading as well. The trade-weighted dollar ceded some ground, but holds above 100. Sterling partly recovers from yesterday’s beating with EUR/GBP visiting both sides of the 0.88 mark. The queen’s money’s fortunes probably don’t look very rosy with the UK lockdown lagging Europe and the US, an end of June brexit deadline nearing and markets probably bound for more stress as corporate domino’s tumble.
News Headlines
The Turkish central bank cut its policy rate in a much more aggressive way than expected. The bank reduced its one week repo rate by 1.0% to 8.75%. The market only expected a 50 bps rate cut. As the March headline inflation printed at 11.86%, the real policy rate is now moving further into negative territory. This is weighing on the Lira. EUR/TRY is drifting higher, currently trading near 7.60, the weakest level for the Lira since the FX crisis in de summer of 2018.
According to the report that the German government will send to the European Commission, the German debt-to-GDP ratio will rise to about 75% of GDP this year, up from 60% last year. The budget deficit might widen to more than 7% of GDP due to the measures taken to address the impact of the Corona crisis. For the same reason, the Slovak Finance Minister today said the Debt-to-GDP ratio might jump from 48% of GDP in 2019 to around 60% in 2020.
Headline inflation in Canada slowed from 2.2% to 0.9%Y/Y in March, the lowest level in 5-year. The decline was sharper than expected (1.1%) Last week the BOC already indicated that inflation could go to 0% in Q2 mainly due to the sharp decline in energy prices. Core inflation as measured by the CPI-common eased only slightly to 1.7% from 1.8%. The loonie hardly reacted to the data but rebounds slightly as the decline in the oil price slows. USD/CAD is drifting back lower to the mid 1.41 area.
