By Lorcan Roche Kelly
Another volatile session
The breakneck moves in markets continue, with S&P 500 futures hitting their lower trading limit overnight, as the intense volatility which has seen the benchmark average 7.7% moves in the past seven sessions shows no signs of easing. The MSCI Asia Pacific Index opened higher before dropping to a 2.6% loss, while Japan’s Topix index managed to cling onto some gains to end the session 0.2% higher. In Europe, the Stoxx 600 Index was 4.3% lower at 5:40 a.m. Eastern Time with strategists at Barclays Plc warning that uncertainty is “likely near peak levels.” Paul O’Connor, head of multi-asset at Janus Henderson, said that a sustained recovery cannot be reached until there is evidence of a slowdown in new coronavirus cases.
European bonds are rapidly selling off this morning, with the Italian 10-year yield moving close to 3%, as the coronavirus fallout in the region was not helped by comments from the head of the Austrian central bank when he said that monetary policy had reached the limits of what it can do. The German bund is not proving a haven from the selling, with the yield on the 10-year bund rising 25 basis points. There is also a jump in the 10-year Treasury yield as that hits 1.2%. For investors, the worries about the virus are coupled with concerns over what the mammoth spending plans from governments will mean for the market.
Crude oil has dropped to 2003 levels with a barrel of West Texas Intermediate for April delivery sinking 5% to $25.60 while Brent dropped to $27.94. The commodity is still facing a perfect storm of demand destruction and oversupply, with Saudi Arabia confirming it intends to ship record amounts of crude in April. Oil analysts are rapidly cutting their forecasts, with Goldman Sachs seeing Brent trade at $20 a barrel, Standard Chartered seeing crude well below $20 and Mizuho Securities warning prices could go negative.
Crisis era response
Nobody can accuse the Federal Reserve of not throwing the kitchen sink at markets right now. As well as the recent massive increase in its repo operations and expansion of asset purchases, yesterday the bank used emergency authorities to establish a Commercial Paper Funding Facility and opened a new lending program for primary dealers. While the bank is unrolling its crisis era playbook, there are still calls for it to do more, with House Speaker Nancy Pelosi asking Chairman Jerome Powell to “explore ways to use the Fed’s authority to assist state and local governments.”
Treasury Secretary Steven Mnuchin warned lawmakers that unemployment could hit 20% in the U.S. as he sought backing for a package of measures that would extend to more than $1 trillion. The proposal could include direct payments of $1,000 to Americans within two weeks, and more payments at the end of April should the crisis remain in place then. While the U.S. is talking about helicopter money, in Europe there are discussions about maybe, possibly, issuing something that could look like eurobonds as German Chancellor Angela Merkel doesn’t say no to the idea.
And another thing
Yes, there’s so much going on, there’s a sixth thing today. Joe Biden secured victory in all three states voting yesterday, with wins in Florida, Illinois and Arizona pushing his delegate count beyond the reach of Bernie Sanders, making him the all-but-certain Democratic nominee for this year’s presidential election. In economic data today, there is a check on what had been one of the real bright lights of the U.S. economy recently, with February housing starts and building permits data published at 8:30 a.m. The Federal Reserve is holding two $500 billion repo auctions. Already busy oil investors will keep an eye on crude inventories numbers at 10:30 a.m.