Market movers today
In Sweden, our Swedish economists stick to the non-consensus call that the Riksbank will cut the repo rate by 25bp to minus 0.25%. The market is pricing a 35% probability of that happening. Recent labour market and NIER confidence data showed that the Riksbank’s February forecasts are obsolete – the world has changed drastically into one of recession and deflation. We have been surprised by the Riksbank’s reluctance so far to signal a repo rate cut back into negative as it has pledged to do ‘whatever it takes’. Now, all board members have said that zero is not a floor. Four out of six appear to be prepared to cut, making it likely that the other two will bend.
March retail sales are also released in Sweden and Norway .
We continue to closely follow COVID-19 infection patterns , after some countries have entered the re-opening phase, and news about clinical trials of drugs.
The ECB will publish its Q1 bank lending survey , giving insight in how successful central bankers have been to stem a credit crunch with their liquidity measures and Pandemic Programmes.
In the US, Conference Board Consumer Confidence for April is released. With job losses accumulating and lengthening lockdowns taking their toll on households’ finances, the drop in consumer confidence is likely to accelerate in April.
Selected market news
It has been fairly quiet overnight and market focus remains on reopening plans amid the earnings season and economic data shedding light on the economic damage done by the virus. The big Asian equity indices are trading in mixed territory and the S&P 500 future is marginally in red after yesterday’s rally. The 10Y US treasury yield is little changed.
Also oil prices remain in focus after a further drop in short-dated contracts this morning. Especially Northern American benchmarks attract attention after the May WTI contract last week reached negative territory for the first time in history. Even with OPEC+ output cuts becoming effective on Friday the market will remain oversupplied in the coming months. This morning the June WTI contract has fallen USD2/bbl – seemingly on the world’s largest ETF moving exposure further out on the curve. This has raised speculations that the June WTI contract could also turn negative as global storage capacity will approach the limit in the coming months. Importantly, longer dated oil contracts – for both WTI and Brent crude – are much less changed highlighting how commodity markets still price a gradual reopening of the global economy and supply side adjustments as entities with high break-even costs are priced out of the market.
According to Bloomberg the European Commission will announce a series of measures today. Amongst other things this will include relief on how EU banks calculate the leverage ratio as well as more time to implement new accounting requirements, which otherwise force banks to set aside capital buffers for souring loans up front. If the stories prove right it would remove a headwind for credit growth amid COVID-19.
