Markets
We started the day with a close eye on European stock markets after moves on WS yesterday evening (Nasdaq -2.7%) and in Asia this morning (China up to -3%). Somewhat to our surprise, the damage in Europe remained very much contained. An attempt to correct lower failed, triggering return action higher. It suggests ongoing indecisiveness after yesterday’s failed attempt of the EuroStoxx 50 to take out the 3742 recovery high. Today’s stock market session in the US will be telling with both the S&P 500 (3800 area) and Nasdaq (13000 area) arriving at first support levels. Recent attempts to extend the long running buy-on-upticks pattern showed signs of fatigue. The relative calm on bond markets probably offers the best explanation for the more constructive risk sentiment. Yesterday’s sell-off stopped during European dealings, though shows signs of retaking as US investors enter dealings. They take US weekly jobless claims into stride. They stabilized as expected near 750k and give a more upbeat message on the US labour market than yesterday’s ADP employment change. US payrolls tomorrow end this data-heavy US trading week. The US yield curve bull flattens at the time of writing with yields shedding 0.5 bps (2-yr) to 2.3 bps (30-yr). The German yield curve moves in similar fashion with yields declining by 1.1 bp (2-yr) to 2.9 bps (10-yr). 10-yr yield spread changes vs Germany are limited to +1 bp.
Little news in the more traditional pockets of FX space. The dollar keeps its better shape, but gains are minimal. The trade-weighted greenback rises from 91 to 91.15. The mirror image in EUR/USD is a flip from above 1.2050 to slightly below. The key support area remains between 1.1952 and 1.1992. Sterling is slightly taking the upper hand over both other majors with yesterday’s Budget out of the way. The feared fiscal orthodoxy remains a thing of the distant future, with the near term focus of the UK government remains on fiscal expansion. EUR/GBP is currently drifting to the 0.86 big figure. The biggest damage on FX markets these days is done to the Japanese yen and Swiss franc. Markets discount that both countries’ central banks will be dead last in normalizing policy, leaving them with significantly negative real yields in the process. USD/JPY sets a recovery high around 107.50, its best level since last summer. EUR/CHF extends the exponential move since mid-February, propelling the pair to 1.1125, the highest level since mid-2019.
News Headlines
The US Small Business Administration published new guidance on the use of the Paycheck Protection Program (PPP) The change in the terms should make it easier for sole proprietors and other small business to make use of loans to be distributed under the program. The change aims to support the use of the program before the deadline for applications on March 31. As of the February 28, PPP loans worth about $156 bn were distributed. The program reopened in January with an envelope of $ 284 bn to provide forgivable loans.
The European competition authorities approved a French scheme worth $ 20 bn that aims to prevent bankruptcies as a consequence of the pandemic. Under the scheme the French state will provide guaranties up to 30% for loans distributed by banks and subordinated bonds that are acquired by private investment vehicles. The structure aims to improve the capital position of the companies involved. As a condition for this state support, the EC said the loans and bonds must be issued before June 30 2022. They must be used to finance investments, not refinancing pre-existing debt and have a maturity of 8-year.
