Monex: Amerikaanse stimuleringsmaatregelen brengen rationaliteit terug naar markten

March 10, 2020

Hieronder volgt een commentaar in het Engels van Ranko Berich, Head of Research bij Monex Europe op koersbewegingen van de Amerikaanse dollar, euro en het Britse pond.

EUR

The euro is trading back on the defensive this morning as the dollar rebounds to some extent following the early signs of fiscal support from the White House. Overnight, news that Italian containment measures will widen to a national-level has put pressure on the euro as the economic toll is likely to increase on the eurozone economy, highlighted by the consideration from the European commission to use state aid rules to help EU governments cushion the economic impacts from the spread of the virus. Meanwhile, in the build-up to the European Central Bank meeting, markets are continuously increasing the pricing of a rate cut, which may also have a hand on the euro bouncing back from its highs. Compared to a week ago, markets are pricing in one more rate cut in the first half of 2020 as the coronavirus cases in the eurozone surge. German Economic Affairs and Energy Minister Peter Altmaier stated yesterday that Germany would do everything to limit the virus impact and added that the faster the virus is contained, the more likely it is that a recession could be avoided in the second half of the year. Eurozone recession fears are fed by the spread of German and Italian 10-year sovereign bond yields that widened to levels not seen since August 2019. German yields fell to a record-low in the risk-off environment, whereas risk premium on Italian debt surged. The widening spread worries the ECB as it is trying to urge banks to lend, suggesting all the more need for increased fiscal policies as this relationship threatens to weaken.

USD

The dollar had a torrid time of it yesterday with the DXY Index falling 0.86%. This was predominantly due to JPY, EUR and GBP all strengthening as risk assets took another nosedive. The rout wasn’t just contained to the dollar, with key petro-currencies also feeling the squeeze. US Equity futures maxed out at -5% before yesterday’s open; a bleak sign for what was about to ensue. Upon opening, the S&P 500 dropped 7% in a matter of minutes, prompting the level 1 circuit breaker to go off for the first time since 2008. This ceased trading in US equity markets for 15 minutes in order to stem a systemic sell-off and it potentially being exacerbated by momentum trading algo’s. Both S&P and the Dow stabilised somewhat after the interlude, failing to trigger level 2 at -12%, but ultimately closed lower 7% lower on the day. Today, futures point to a mild recovery with S&P up 3% pre-market, following mild rallies in Asian benchmarks after a near 4% drop during the session, while other risk assets also climb. This is likely due to the verbal intervention from President Trump late last night who promised very substantial economic relief measures. Trump is due to meet with representatives from both houses later today to discuss potential tax breaks and support for workers on hourly wage contracts “so they don’t get penalised for something that isn’t their fault”. News of further stimulus was doubled down by Treasury Secretary Steve Mnuchin, who yesterday said he was in regular contact with the Fed Chair Powell. The improvement in risk appetite has led to the dollar reclaiming near 2% against the Japanese yen while the Swiss franc weakens the most since July.

GBP

Sterling was dragged higher by its bootstrings yesterday, arguably due to the rally in the euro filtering through. However, with promises of fresh stimulus from the US, along with greater containment efforts in mainland Europe, markets are starting to price risk more rationally. The pound finds itself retracing yesterday’s rally alongside the single currency, with little bookmarked for today’s session before tomorrow’s pivotal budget speech.