- A deal was struck on the US stimulus plan, giving risk appetite another boost.
- Markets continue to digest the Fed’s recent moves to open up the floodgates
- Canada saw nearly 1 mln jobless claims filed last week, nearly double Prime Minister Trudeau’s estimate last week of 500k; this suggests huge upside risks to US claims data
- Sterling received an extra boost from a report suggesting that hospitalization rates in the UK could be far lower than other countries
- SARB will begin a bond purchase program; nationwide lockdown was announced in India yesterday; Thailand unexpectedly kept rates steady
The dollar is broadly weaker against the majors as the US Senate reached a deal on its stimulus bill. Nokkie and sterling are outperforming, while yen and Swissie are underperforming. EM currencies are mostly firmer. MXN and KRW are outperforming, while CNY and PHP are underperforming. MSCI Asia Pacific was up 5.6% on the day, with the Nikkei rising 8.0%. MSCI EM is up 3.6% so far today, with the Shanghai Composite rising 2.2%. Euro Stoxx 600 is up 1.4% near midday, while US futures are pointing to a higher open. 10-year UST yields are down 1 bp at 0.84%, while the 3-month to 10-year spread is unchanged and stands at +88 bp. Commodity prices are mostly lower, with Brent oil down 1.8%, copper up 0.5%, and gold down 0.6%.
A deal on the US stimulus plan was struck (see below), giving risk appetite another boost. Equities are a sea of green across the board and follows Wall Street’s surge yesterday. News that Italy’s virus deaths rose again after two days of decline had little impact. The Nikkei closed +8%, Hang Seng +3%, and stocks across the region were similarly positive.
Markets continue to digest the Fed’s recent moves to open up the floodgates. When QE was first introduced back in 2008, the dollar initially weakened but then recovered to even stronger levels. We believe that dynamic will likely unfold now. For our thoughts on what the Fed has done and what the Fed could still do, please see our recent piece “To Infinity (and Beyond).”
The Senate was able to strike a deal on its stalled stimulus bill. Minority leader Schumer called it an “outstanding agreement.” Details are still being drafted but majority leader McConnell said the vote would be held today. The $2 trln plan includes $500 bln that can be used to back loans and aid to companies as well as state and local governments. It also includes $350 bln earmarked for aid to small businesses and $150 bln for hospitals and healthcare providers of equipment and supplies. The deal also provides direct payments to low and middle income earners of $1200 per adult and $500 per child. Unemployment insurance would be extended to four months, with benefits boosted by $600 per week and eligibility expanded to cover more workers.
Canada saw nearly 1 mln jobless claims filed last week, nearly double Prime Minister Trudeau’s estimate last week of 500k. That 1 mln represents about 5% of the workforce. With the economy in freefall, more stimulus is likely. WIRP suggests 100% odds of a cut at the next BOC meeting April 15, while analysts see two cuts then that would take the policy rate down to 0.25%. CAD continues to underperform despite the small bounce in oil prices.
Current Bloomberg consensus for weekly jobless claims this Thursday is 1.5 mln. Canada’s reading suggests this is way too low, as its 1 mln claims is roughly equivalent to 10 mln jobless claims for the US. While 10 mln is clearly way too high, the truth is likely to be somewhere in between. Today, the US reports February durable goods orders (-1.0% m/m expected).
Sterling received an extra boost from a report by University of Oxford suggesting that hospitalization rates in the UK could be far lower than, for example, Italy. Modelling by the Infectious Disease group claims that the virus started to spread in the UK by mid-January and as much as half the population has already been infected. If so, only one in a thousand of those infected have become ill enough to need hospital treatment. If true, this is great news for the country’s health system.
Elsewhere, the UK reported February CPI data. Both headline and CPIH fell a tick to 1.7% y/y, as expected. February retail sales will be reported Thursday, with headline expected to rise 0.2% m//m vs. 0.9% in January.
The South African Reserve Bank (SARB) will begin a bond purchase program. The bank has not disclosed the size and duration of the program yet, saying only that “purchases will be conducted across the yield curve.” SARB’s stated objective is to improve liquidity, but of course this has an added benefit of helping the government finance its debt. Local markets yield fell sharply across the curve with the 10-year down over 100 bp. The rand is up 1% against the dollar, but it’s hard to read much into it given the broad positive moves across EM.
A nationwide lockdown was announced in India yesterday. While a lockdown was in place across some states in India on March 23 (including Maharashtra and the city of Mumbai), banks and financial institutions continued to operate as normal. So far, we have seen no impact to FX and securities trading, though spreads have widened and liquidity is tightening. We will continue to monitor the situation and provide updates as they occur.
Bank of Thailand unexpectedly kept rates steady at 0.75%. The market was nearly evenly split, with many analysts looking for no cut. The bank just delivered an emergency cut last Friday after an unexpected 25 bp cut to 1.0% at its February 5 meeting. As such, another cut this week was clearly too soon, but further easing is likely in the coming months. Four voted for steady rates, two for a cut, and one was absent. The bank slashed its forecasts and now looks for a -5.3% contraction this year vs. 2.8% growth previously. Assistant Governor Titanun warned that the economy would recover next year, with the bank forecasting 3% growth.