News & analysis

The dollar is lower this afternoon, after the Fed announced a raft of aggressive new credit easing measures. On the whole it seems global macro markets are no longer trading in a binary “risk on, risk off” dynamic – this suggests risk appetite on the whole has improved, for the time being.

A few thoughts on the day’s events and agenda:

  • Promising OPEC noise, but this does not mean a cut will happen, or that it will be big enough. Crude oil is well bid after some favorable OPEC+ headlines, but given the huge scale of the fall in global demand, the cartel may struggle to meet expectations. As March’s breakdown in talks and the ensuing price war between Saudi Arabia and Russia showed, good headlines going into a meeting most certainly do not guarantee a production cut at the end. A potential hiccup is the fact that Saudi Arabia is reportedly pushing for April as the baseline of any cuts – when their own production has likely risen to a record high. Official Russian sources have been receptive to the idea of a cut, although they have emphasised that all major producers must participate, including the United States. The depth of any cuts is the other question for OPEC+. Crude oil demand will fall by anything in the order of 10 to 25 million barrels a day over the next three months, so official cuts of 10mbd may only be enough to staunch the bleeding for crude as opposed to create a stable rally.
  • Eurogroup tries again. After failing to reach an agreement after a marathon 16-hour call through Tuesday night and Wednesday morning, Eurogroup talks on a COVID response will reportedly begin again today. The conditions attached to any loans from the European Stability Mechanism are the key question, along with how the loans will be financed. The size and duration of the funding will also be crucial. Eurozone financial conditions have been deteriorating, with EURIBOR benchmark rates increasing again yesterday, widening their spread over other lending such as ECB overnight rates and OIS of a similar duration. In addition to any interbank sovereign risk, another driver of higher EURIBOR rates may be tightening credit conditions for corporates in the Eurozone – exactly the kind of companies that will need the most support from banks to prevent insolvencies and layoffs. Bund-BTP spreads are once again wider today. On the whole, these developments are the opposite of what European policymakers should be hoping for at the moment.
  • ECB and FOMC minutes offer little new information. Policymakers from the ECB and FOMC have given ample explanation for their emergency actions in recent weeks, so the minutes of both central banks have offered limited new information. FOMC members feared a sharp decline in economic and market conditions last month – this has been realised in the data since then. The FOMC minutes also emphasised concerns about liquidity and good functioning in fixed income markets, particularly US Treasuries. The ECB minutes were similarly uneventful, and confirmed that certain Governing Council members had reservations about launching new asset purchases.
  • Initial jobless claims top 6 million in the US for second consecutive week. Initial jobless claims were 6.6m in the US, while continuing claims rose to 7.4m. As extraordinary as this increase is – in 2008 and 2009, the worst weeks only saw increases of around 600,000 – the figures were broadly in line with expectations.
  • Jerome Powell will speak at 14:50 BST as Fed expands business funding. The Fed has announced further support for business lending by announcing that it will provide as much as $2.3 trillion in new liquidity. Small business loans will be purchased from banks, as well as a number of other measures.


Chart: 3m EURIBOR diverges from ECB policy rate


Author: Ranko Berich, Head of Market Analysis



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