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[PODCAST] EU Open Rundown 25th March 2020

  • US Senate Majority Leader McConnell confirms that a bipartisan stimulus deal has been reached; package is said to be worth USD 2.5trl
  • Asian equity markets traded with firm gains as the region took impetus from the historic rally on Wall St where the DJIA jumped by over 2100 points
  • ESM's Regling said precautionary credit line ECCL is best for the COVID-19 response and would be available to all EZ countries
  • US President Trump's administration was initially reported to mull a 90-day deferral of tariffs on all imported goods from around the world
  • In FX markets, the DXY was softer overnight although remained tightly centred within the prior day’s range circa 101.00-102.00
  • Looking ahead, highlights include UK CPI, German IFO, US Durables, DoEs, US 5yr Note supply

CORONAVIRUS UPDATE

US Senate Majority Leader McConnell confirmed the they have reached a bipartisan deal and said the stimulus package would rush financial assistance to Americans, while he added help is on the way and we will pass this legislation later today, while a source noted the stimulus deal was worth USD 2tln. (Newswires) US Senate Democrat leader Schumer says legislation has been improved and we have an agreement on the largest rescue package in history, while he added the bill provides more than USD 130bln to aid hospitals and USD 150bln to support state and local governments. (Newswires) NEC Director Kudlow said stimulus 3 will be USD 6tln including around USD 2tln for direct relief such as check payments, unemployment insurance, as well as grants and loans for businesses, while around USD 4tln will be in Fed lending. In related news, a US aide said the deal on stimulus bill is close although a vote on Tuesday night was unlikely. (Newswires)

US CDC reported total coronavirus cases increased to 44,232 (prev. 33,453) and death toll rose to 544 (Prev. 400). (Newswires)

US President Trump said they are working hard to make Easter a reality for reopening the economy and are looking at data. President Trump added that for the most part, they will not use the Defense Production Act although will utilize it if need be, while he sees light at the end of the tunnel and added that hopefully senators will vote on stimulus soon. (Newswires)

Italy total coronavirus cases rose to 69,176 (prev. 63,927) and the death toll increased to 6,820 (prev. 6,077). In related news, Italy PM Conte proposed fines worth between EUR 400-3,000 for those defying lockdown orders and hopes to soon loosen the lockdown restrictions, while he rejected reports that the government plans to extend the lockdown until July 31st and expects the curb to be lifted well before then. (Newswires)

Mainland China reported 47 additional coronavirus cases and 4 additional deaths on March 24th vs. 78 additional cases and 7 deaths on March 23rd, to bring the total cases in mainland China to 81,218 and total death toll at 3,281. (Newswires) South Korea reported 100 additional coronavirus cases to take total to 9,137 and 6 additional deaths for a total of 126, while there were 223 newly recovered to take the total to 3,730. (Newswires) New Zealand declared a national emergency due to the coronavirus. (Newswires)

ASIA

Asian equity markets traded with firm gains as the region took impetus from the historic rally on Wall St where the DJIA jumped by over 2100 points or around 11.4% for its largest daily point gain on record and biggest percentage jump since 1933, with sentiment underpinned by hopes of a stimulus breakthrough which eventually materialized as negotiators reached a deal on the coronavirus stimulus bill and with US President Trump touting a reopen of the US economy by Easter. ASX 200 (+5.5%) surged as the stellar performance stateside reverberated across the region with Real Estate, Industrials and Financials front-running the gains which briefly saw the index notch its biggest intraday gain since October 2008 to briefly surmount the 5k level, while Nikkei 225 (+8.0%) was lifted by the recent JPY-weakness and with the BoJ Summary of Opinions from last week’s emergency meeting suggesting the central bank was flexible and open to another off-schedule meeting. Elsewhere, Hang Seng (+3.0%) and Shanghai Comp. (+2.1%) benefitted from the heightened global risk tone and amid reports the Trump administration is said to mull a 90-day deferral of tariffs on all imported goods from around the world, although the gains were somewhat capped as White House Trade Adviser Navarro refuted the prospects of a tariff deferral and following continued PBoC liquidity inaction. Finally, 10yr JGBs were relatively flat with demand subdued by gains in stocks and in the absence of BoJ purchases in the market today, while the announcement of a coronavirus bill agreement later weighed on prices and to break down support at the 152.00 level.

PBoC skipped open market operations for a net neutral daily position and announced a CNY 5.0bln central bank bill swap operation today. (Newswires)

PBoC set USD/CNY mid-point at 7.0742 vs. Exp. 7.0735 (Prev. 7.0999)

PBoC is said to be in talks to lower the rates banks pay on savings accounts and may lower the deposit rate in approaching days. (FT)

BoJ Summary of Opinions from the March 16th emergency meeting stated they must strengthen monetary easing to prevent worsening of corporate and household confidence, while it noted they should enhance monetary easing through three perspectives which is providing ample funds so that financial institutions can sufficiently fulfill the functioning of financial intermediation, doing its utmost to facilitate corporate financing, and ensuring stability in financial markets by restraining the expansion in risk premia through an increase in purchases of assets such as exchange-traded funds. Furthermore, it noted they can respond flexibly including holding an emergency meeting again and increase the pace of JGB buying up to its JPY 80tln annual guideline. (Newswires)

UK/EU

UK's COVID-19 relief package for the self-employed will probably not be complete by Wednesday but will be done by the end of the week as it is proving more difficult than expected, according to Sky's Conway. (Twitter)

ESM's Regling said precautionary credit line ECCL is best for the COVID-19 response and would be available to all EZ countries up to their discretion, while he added that the size of the credit line could be 2% of each country's GDP which could be adjusted depending on crisis development and ESM credit lines could be used to finance the country’s immediate health care response to the crisis. (Newswires)

Eurogroup Head Centeno stated there is a broad support for using the ECCL credit line from the ESM bailout in the economic response to the coroanvirus with the conditionality to be focused on the epidemic, while he is said to write to EU leaders recommending the approach. (Newswires)

FX

In FX markets, the DXY was softer overnight although remained tightly centred within the prior day’s range circa 101.00-102.00 as markets awaited a breakthrough on the coronavirus stimulus bill which eventually materialized. The recent fluctuations in the greenback dictated the price action for its major counterparts as EUR/USD briefly reclaimed the 1.0800 handle to the upside and with GBP/USD breaking through the prior day’s resistance around 1.1800. Elsewhere, USD/JPY initially slipped below 111.00 due to the softer USD but then recovered as risk appetite received a second wind on the US coronavirus stimulus bill agreement, while antipodeans were initially indecisive with AUD/USD muted by a lack of data and with NZD/USD kept lacklustre as the mostly improved trade data was offset amid the RBNZ’s first-ever QE operation and the government’s national emergency declaration. However, antipodeans were then spurred in late trade on the announcement of the US stimulus bill agreement.

New Zealand Trade Balance (Feb) 594M (Prev. -340.0M, Rev. -414M). (Newswires) New Zealand Exports (Feb) 4.92B (Prev. 4.73B, Rev. 4.69B) New Zealand Imports (Feb) 4.33B (Prev. 5.07B, Rev. 5.10B) 

COMMODITIES

Commodities were mixed in which WTI crude futures rose around 3.5% to test the USD 25/bbl level amid the heightened risk appetite which saw the largest gain in the DJIA since 1933 and amid the coronavirus stimulus breakthrough which is said to be valued at USD 2tln and includes direct payments to Americans, as well as about USD 50bln for the airlines. In addition, the latest private inventory report was also constructive for prices as it showed a surprise draw of 1.2mln bbls. Elsewhere, gold was choppy and gave back some of the prior day’s gains due to the heightened risk appetite, while copper prices failed to benefit from the rally in stocks and instead kept rangebound near the USD 2.20/lb level.

US Private Inventory Crude Stocks -1.2mln vs. Exp. +2.8mln (prev. -0.4mln). (Newswires)

CME raised COMEX copper futures margins by 17.2% to USD 3750/contract from USD 3200/contract, while it is to launch a new gold futures contract with expanded, flexible delivery in 100 ounces, 400 ounce or 1 kilo bars. (Newswires) 

US

Treasuries were offered most acutely in the front to belly amid a chunky return rally in the equity complex. The market is expecting Congress to come together on a stimulus package, which has supported risk appetite on Tuesday, as well as increasing the certainty of a deluge of supply for government bond investors to digest. The Fed continues to be an active participant across the curve, providing some support in afternoon trade with its Treasury and MBS purchases post its “QE Infinity” announcement on Monday. Elsewhere, in the US 2-year auction, USD 40bln was sold, tailing the 0.39% WI by 0.8bps, with dealers taken a larger than average share. By settlement, looking across the curve, 2s5s +3bps, 2s10s -2bps, 2s30s -4bps; 2-year +9.5bps, 10-year +7bps, 30-year +3.5bps. T-note (M0) futures settled 24 ticks lower at 137-14+.

US President Trump's administration was initially reported to mull a 90-day deferral of tariffs on all imported goods from around the world, although White House Trade Adviser Navarro later refuted the reports and stated that the White House is not considering a 3-month tariff deferral. (Newswires)

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