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[PODCAST] EU Open Rundown 19th March 2020

  • Asian equity markets extended on losses with price action turbulent amidst ongoing coronavirus fears and disruptions
  • ECB announced EUR 750bln Pandemic Emergency Purchase Programme, conducted until end-2020
  • Fed announced to launch mutual money market fund facility to lend to financial institutions
  • RBA lowered Cash Rate Target by 25bps to 0.25% and announced QE as speculated
  • In FX, DXY remained firm above 101.00, USD/JPY traded on either side of 109.00, Antipodeans were pressured
  • Looking ahead, highlights include US Initial Jobless Claims, SNB & SARB Monetary Policy Announcements, supply from Spain, France and the UK

CORONAVIRUS UPDATE

Mainland China reported 34 additional cases of coronavirus and 8 additional deaths on March 18th vs. Prev. 13 additional cases and 11 additional deaths on March 17th to brings total mainland cases to 80928 and death toll at 3245. (Newswires) Note: the numbers arose from imported cases as opposed to local cases.

Italy coronavirus cases rose to 35713 (Prev. 31506) and the death toll rose by 475 to 2978. (Newswires)

South Korea reported 152 additional coronavirus cases to take total to 8565 and deaths increased by 7 to a total of 91, while there were an additional 407 that fully recovered to bring the total to 1947. (Newswires)

California Governor says modelling shows 60k homeless in the state could contract coronavirus over next 8 weeks

US President Trump tweeted that he only signed the Defense Production Act to combat the Chinese Virus should we need to invoke it in a worst-case scenario in the future, although he added that hopefully there will be no need. (Twitter)

US Senate passed the coronavirus response bill which allows free testing and requires paid sick leave for workers impacted by coronavirus, which US President Trump signed into law. (Newswires)

NEC Director Kudlow said the Phase 3 economic relief bill should bring USD 1.3trln worth of stimulus and that the US has enormous resources to deal with distressed industries, while he added that if it takes more than USD 1.3trln worth of stimulus, it will be done and that the government may take equity positions in companies as part of an aid package. (Newswires)

UK PM Johnson said we will not hesitate to bring further and faster measures where we think it is necessary, while he added the government will rule nothing out when asked about travel restrictions. There were also reports that PM Johnson asked departments to draw up plans for London lockdown in which the Cabinet Office has asked for proposals on restrictions, implementation and compliance measures being called the ‘London Shielding Plan. (Newswires/The Times)

NYSE is to move temporarily to fully electronic trading with equities and options trading floors to temporarily close from Monday 23rd March. (Newswires)

CENTRAL BANKS

 

ECB announced EUR 750bln Pandemic Emergency Purchase Programme (PEPP) in which it will launch a new temporary asset purchase programme of private and public sector securities to counter serious risks to monetary policy transmission mechanism. Purchases will be conducted until the end of 2020 and will include all the asset categories eligible under the existing asset purchase programme (APP). Furthermore, the GC said it is fully prepared to raise size of programmes, as well as adjust composition by as much as necessary and for as long as needed. A waiver of the eligibility requirements for securities issued by the Greek government will be granted for purchases under PEPP. (Newswires) Link to release

ECB's Lagarde said extraordinary times require extraordinary action, while she added there are no limits to our commitment to the Euro and are determined to use full potential of all our tools within our mandate. (Newswires)

ECB's Villeroy said ECB is absolutely determined to fight fragmentation risk between Eurozone countries and noted it will buy more bonds if needed in this exceptional period, while he also stated that French banks are solid and do not need nationalisation. (Newswires)

Fed announced to launch mutual money market fund facility to lend to financial institutions which it said will help meet demands for redemptions by households and other investors to enhance credit provisions throughout the economy.  Furthermore, the program includes USD 10bln of credit protection from US Treasury Exchange Stabilization Fund. (Newswires)

New York Fed plans to purchase USD 100bln in Treasury purchases over Thursday and Friday. (Newswires)

RBA lowered Cash Rate Target by 25bps to 0.25% and announced to buy government bonds in secondary market as speculated, which will commence on Friday. Furthermore, the RBA announced to offer 3yr funding (TFF) to authorized deposit taking institutions with the facility valued at least AUD 90bln, while it stated that banks will have access to additional low-cost funding if they expand lending to businesses. (Newswires)

BoJ January Meeting Minutes noted that most members stated they must be mindful of downside risks to the economy but momentum for hitting price target is sustained. (Newswires)

ASIA

Asian equity markets extended on losses with price action turbulent as ongoing coronavirus fears and disruptions, which now threatens to lockdown New York and London, offset the various global policy efforts to tackle the fallout including the ECB announcement of a EUR 750bln Pandemic Emergency Purchase Programme and RBA rate cut with QE. The announcement by the ECB initially boosted US equity futures and propelled Euro Stoxx 50 futures higher by over 3%, although the momentum then waned which fully wiped out the earlier gains. ASX 200 (-1.0%) swung between gains and losses heading into the off-schedule RBA monetary policy announcement which despite the RBA actions, did little to support the Australian benchmark which was heavily pressured by a collapse in the real estate sector, energy and financials. Nikkei 225 (-2.5%) also gave back opening gains with Tokyo exporters weighed by the safe haven flows into the domestic currency and with participants diminishing risk ahead of tomorrow’s holiday closure. Hang Seng (-3.7%) and Shanghai Comp. (-1.4%) were subdued as the coronavirus jitters continue to ruffle markets and as earnings also entered the fray including Hong Kong heavyweight Tencent which missed on its

Q4 net, while the biggest mover was the Philippines PSEi which dropped as much 24% on resumption from a 2-day halt due to coronavirus concerns and with its capital city currently on lockdown. Finally, 10yr JGBs were subdued and continued to test support at 151.00 where prices have found a base. The BoJ were also active in the market today in which it announced 2 unscheduled special operations to purchase a total of JPY 1.3tln of JGBs although this only briefly underpinned prices, while Japanese CPI data and outdated BoJ minutes from the January meeting were largely ignored given that the data was mixed and meeting was prior to the blow up of the coronavirus pandemic.

PBoC skipped open market operations for a daily net neutral position. (Newswires) PBoC set USD/CNY mid-point at 7.0522 vs. Exp. 7.0486 (Prev. 7.0328)

Japanese National CPI (Feb) Y/Y 0.4% vs. Exp. 0.5% (Prev. 0.7%). (Newswires) Japanese National CPI Ex. Fresh Food (Feb) Y/Y 0.6% vs. Exp. 0.6% (Prev. 0.8%) Japanese National CPI Ex. Fresh Food & Energy (Feb) Y/Y 0.6% vs. Exp. 0.7% (Prev. 0.8%)

UK/EU

UK Education Secretary Williamson confirmed schools will remain shut from Friday until further notice. (Newswires)

Whitehall sources said most shops could close and transport could be restricted in London by the weekend under plans being considered by UK Government. (Sky News)

Transport for London adjusted its service operations in which it will shut the Waterloo & City Line and close up to 40 stations, as well as suspend the night tube and night overground although night buses will still operate for essential journeys. (Sky News)

FX

In FX, the DXY remained firm and above the 101.00 handle amid higher yields and as the panic selling across asset classes spurred a demand for cash, while its major counterparts were subdued in which EUR/USD languished around the 1.0900 level after the prior day’s walloping it took against the greenback was eventually eased by support at 1.0800, and the pair also found some brief reprieve from news of the ECB’s Pandemic Emergency Purchase Programme. GBP/USD remained subdued around 1.1500 after having slipped to its lowest levels in around 35 years as the coronavirus pandemic threatens to shutdown London. USD/JPY was higher and momentarily broke above 109.00 which was due to the strength of the greenback as most JPY-crosses succumbed to the safe haven flows. Antipodeans nosedived in which AUD/USD and NZD/USD both slipped to test the 0.5500 level amid the spooked risk tone, recent slump in commodities and heading into the RBA decision where it cut rates and announced to conduct QE for the first time as widely speculated. Furthermore, AUD/NZD recently fell below parity for the first time since its float, while better than expected Australian Employment Change and a surprise decline in the Unemployment Rate to 5.1% from 5.3% was largely ignored with participants preferring to focus on the March numbers given the recent substantial industry lay-offs due to coronavirus.

Australian Employment Change (Feb) 26.7k vs. Exp. 10.0k (Prev. 13.5k). (Newswires) Australian Unemployment Rate (Feb) 5.1% vs. Exp. 5.3% (Prev. 5.3%) Australian Full-Time Employment Change (Feb) 6.7k (Prev. 46.2k)

New Zealand GDP (Q4) Q/Q 0.5% vs. Exp. 0.5% (Prev. 0.7%, Rev. 0.8%). (Newswires) New Zealand GDP (Q4) Y/Y 1.8% vs. Exp. 1.8% (Prev. 2.3%)

Brazilian central bank lowered the Selic rate by 50bs to 3.75% as speculated. (Newswires)

COMMODITIES

Commodities were mostly weaker amid the continued sell-off across global markets as investors ploughed into the greenback which saw gold prices slip further away from the USD 1500/oz level, while copper also took a hit overnight on the spooked risk sentiment and amid heavy selling of commodities as Shanghai metals trade got underway in which Shanghai front month copper prices declined around 9% at the open. Conversely, WTI crude futures saw some reprieve overnight with gains of nearly 12%, although it still has far to go to recoup the prior session’s 24% drop in prices to its lowest since 2002 where it briefly tested USD 20/bbl amid the panic selling across markets and reports that Saudi’s Energy Minister directed Aramco to continue supplying crude at a rate of 12.3mln BPD over the coming month.

US

The TPLEX continued its bear steepener amid a flight to cash seen across all major assets. The offer was most severe in APAC trade as US equity futures hit their limit down. The lift in equities after the US cash open also saw some support for the TPLEX, although ultimately proved short-lived. In the background participants are digesting the mass global fiscal stimulus packages being proposed, which will ramp-up supply. Furthermore, desks note the continued unwind of relative value and basis trades that have been blown up lately, in addition to wider profit-taking in the context of the pronounced drop in rates in the wake of the virus outbreak. By settlement, 2s/10s +7bps to around 63bps, levels not seen since 2018, with the 10-year yield +16bps to 1.16%; note that the 30-year yield reached close to 2% at one point. T-note futures (H0) settled 1 point 22 ticks lower at 134-12.

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