Morning Comment 30.03.2020
It was a mixed week for the Euro with gains made against the Dollar and losses seen elsewhere as has been the case during rare bouts of risk-on. Weak PMIs were ignored last week and in the short term data will receive less attention than the trajectory of new Coronavirus cases and the, so far, uncoordinated action of the EU. Month end buying of Dollars could also weigh on EUR/USD this week.
In a week that saw both PM Johnson and the Prince of Wales contract Covid-19, Sterling managed to shrug off virus concerns to rally strongly against its peers. The Pound has been strongly correlated to equity moves in recent weeks and has tracked the improvement in stocks with massive fiscal and monetary sentiment finally boosting sentiment. Over the weekend Fitch downgraded the UK’s credit rating.
The Dollar suffered its worst week since 2009 as the Fed’s liquidity measures have reduced the demand for Dollars while the rally in equities has seen a reduction in safe haven positioning as monetary and fiscal bazookas cushion markets. Spiralling virus cases – including stark estimates from leading figures – and the unprecedented leap in jobless numbers underscore the severe economic and health challenges ahead.
27 Mar 2020
Morning Comment 27.03.20
European leaders struggled to agree on a unified strategy to combat the Covid-19 crisis in a conference call yesterday, leaving key details to be discussed by EU finance ministers in the weeks ahead. Countries hardest hit by the Virus, including Italy, France and Spain continue to push for radical steps to counteract the economic damage such as joint debt issuance but Germany and other northern member states have so far refused to agree to the so called ‘Coronabonds’. The Euro trades above 1.10 against the Dollar and at .90p against Sterling this morning.
Yesterday, Chancellor Rishi Sunak extended government cash grants of £9 billion to the 5 million self-employed, taking the UK’s entire fiscal package up to 4-5% of GDP. This, coupled with enormous monetary easing and more stringent action to curtail the spread of the Virus, has provided a tailwind to Sterling over the past days. The Pound strengthened further following yesterday’s unchanged BOE Meeting and on the week is now 6% higher against the Dollar and 4% higher against the Euro.
The Dollar has been sold heavily all week with the Greenback heading for its biggest weekly loss since 2009. Liquidity measures taken by the Fed have reduced demand for Dollars in the past days while the near 20% rally in equities from Monday has seen investors move some of their haven cash back into riskier assets. News that the US has overtaken China for most Virus cases worldwide has taken the shine off the equity rally overnight while yesterday’s unprecedented spike in weekly jobless claims underscores the enormous challenges ahead.
26 Mar 2020
Morning Dealer Comment
The Euro is firmer this morning against most currencies and has added to four day gains against the Dollar to trade back above 1.0900. Last night the ECB removed self-imposed limits on bond purchases for its new Pandemic Emergency Programme and now has unlimited firepower to fight the economic fallout from the crisis. European leaders are due to hold a virtual summit this afternoon to discuss measures on coordinating their response with some countries pushing for a common debt instrument, or ‘Coronabond’, to fund the cost.
Sterling continues to trade broadly in line with equity moves for now and as stocks have seen a mild bounce over the past few days so too has the Pound. The Bank of England will hold their scheduled interest rate meeting at noon today although having delivered two emergency rate cuts this month so far the market is not expecting any further action. With interest rates now at record lows of 0.1% the committee have indicated reluctance to introduce negative rates and if they do decide to take further easing measures today it is likely to come in the form of further QE.
Overnight the US Senate approved an historic $2 trillion rescue package to respond to the economic and health crisis resulting from the Coronavirus. It will now pass to the Democratic led House where it is expected to be signed off on tomorrow before entering law. Treasury Secretary Mnuchin says payments will likely start 3 weeks from now and help the economy for the next three months with the hope that new Covid-19 cases should peak in the coming weeks. Equity markets rallied on the news although have since given back some gains while the Dollar is lower against other developed currencies.
19 Mar 2020
Morning Dealer Comment
The increasing volatility in markets has spurred authorities into drastic action and overnight the ECB announced a €750 billion Pandemic Purchase Programme (PEPP) to combat the economic effects of Covid-19. Purchases, including Greek debt, will be conducted until the end of 2020 and the Governing Council will also consider revising some of its self-imposed QE limits. The Euro remains strong against most G7 currencies, hitting 10 yr highs against Sterling, but is under pressure against the Dollar despite a brief bounce on the news.
Extreme volatility in UK markets saw Sterling plunge to 1.1500 against the Dollar, a level last seen in the early 1980s. Ten year lows were also recorded against the Euro at 95p as market participants scrambled to cut their long Pound positions. With the UK authorities deemed to be lagging their European counterparts in taking drastic action to stem the spread of the Virus some commentators are suggesting the impact of Coronavirus may be more severe and expectations are for a further 25 bp cut and increased QE from the BOE.
Heavy selling in equity markets continues unabated and in this environment the Dollar has become the currency of choice, reaching multi year highs in many currency pairs. Liquidity tensions in the US have increased demand for the US currency in the past few days and so far measures taken by the Fed have failed to calm markets in any meaningful way. Overnight White House Economic Advisor Kudlow suggested the government could take an equity stake in companies seeking aid but so far equity bounces have been minimal.
18 Mar 2020
Morning Dealer Comment
With new cases of Coronavirus continuing to spiral the EU has banned travellers from outside the bloc for 30 days in an unprecedented move to seal its borders amid the crisis. Yesterday the ZEW survey plummeted to -49.5 underlining the shock to sentiment. European equity markets are under pressure again this morning and 35% off the highs of four weeks ago with the single currency struggling against the Dollar but firm against Sterling.
Yesterday, the UK Chancellor Rishi Sunak announced further fiscal measures to support the economy as the spread of COVID-19 intensified and the government issued more stringent containment measures. Newswires subsequently reported that UK airports could be shut and people held on public health grounds under emergency powers to tackle Coronavirus. Sterling remains on the back foot against the Euro and particularly against the Dollar where it trades close to the lows of last year.
In recent developments the Trump administration is proposing a fiscal plan that could amount to as much as $1.2 trillion in spending-including direct payments of $1,000 or more to Americans within two weeks – to alleviate some of the economic impact of the widening Coronavirus outbreak. Equity markets initially rallied on the news but have sold off again while the Dollar remains firm across the board, trading near 1.100 to the Euro and above 107 against the Yen.