Sterling has been somewhat out of the spotlight for the past 24 hours, as momentous policy developments in the US and Europe have been in focus for markets. The pound is broadly higher against the US dollar compared to yesterday morning, and flat against the euro, having briefly seen a burst of strength around midday yesterday before paring back some of those gains. Speaking to the House of Commons yesterday, senior civil servant Peter Schofield said that almost half a million people had applied for universal credit in the past 9 days. The figures are consistent with other early hints of labour market conditions from the US and Canada, which point towards an unprecedented contraction in the economy, including the labour market. More measures to support workers, aimed at the self-employed, are expected to be announced today by Rishi Sunak, after Boris Johnson said that they should have “parity of support” with those employed by businesses. Given the recent history of close collaboration between the Treasury and the Bank of England, today’s measures may be supported by additional decisions from the central bank, which will announce policy decisions and release meeting minutes at 12:00 GMT today. Somewhat surprisingly, no press conference is currently scheduled after the announcement, despite the fact the BoE has been busy since its last formal policy decision. Recent actions from the Bank have included the opening of the Contingent Term Repo Facility, a joint letter to Banks with HM Treasury exhorting them to keep lending, and joint FCA, FRC and PRA statements on Covid-19 relaxing various regulatory and reporting requirements.


The euro is benefitting from a softer dollar this morning after the US Senate unanimously approved a massive $2trn stimulus package. European Central Bank policymakers are said to be in favour of launching the Outright Monetary Transactions program that was designed in 2012 after Mario Draghi pledged to do “whatever it takes” to save the euro. This would allow the ECB to buy massive amounts of a nation’s sovereign debt, pushing down bond yields. The ECB also released a legal text that said it would not apply self-imposed borrower issuance limits on the 750 billion euro Pandemic Emergency Purchase Programme, a move that was spoken of as a possibility at this month’s emergency meeting on the 18th of March. Elsewhere, Finance Minister Olaf Scholz states that Germany is considering targeted stimulus to bring around economic growth once the coronavirus pandemic eases off, and nine eurozone countries called for the issuance of an area-wide sovereign debt instrument, or “coronabond”. Joint eurozone debt issuance has been an age-old political problem for the currency area, and predictably Germany did not join France, Italy, Spain and the other nations in calling for the move. So far, there are few signs of stabilisation in the pandemic in Europe, as Germany’s daily cases surged by another 4995 and the Spanish death toll joined Italy’s in surpassing that seen in Hubei, the source of the original outbreak. German GfK consumer confidence plummeted to 2.7 in April compared to 8.3 in March, while estimations were set at 7.5. In France, business confidence dropped to 95, slightly below the consensus of 97, but manufacturing confidence printed well above consensus at 98 compared to the estimated 93, sharing a similar story to the PMI release on Tuesday: manufacturing firms’ overall production may have fallen, but improved export orders allowed for a slight jump in new orders.


Markets look as if they are returning to normality today as the greenback trades mixed against its G10 peers, while currency moves against the dollar in the EM space appear to be less dramatic. The big announcement overnight is that the Senate unanimously approved Trump’s $2trn spending bill, as Senators move past a dispute over expanded unemployment benefits for low-wage workers. Eyes will be on the House of Representatives now where the Democrats hold the majority before the bill can be signed off by President Trump and put into action. The House is set to vote on the bill on Friday, which will provide $500bn in loans and other assistance to big companies, states and cities, and $350bn in aid to small businesses. Stock buybacks will be banned to any company seeking a loan for the whole of the loan term plus one year after that, while executive bonuses will also have to be capped and the right steps to protect workers put in place. The government seems to be learning from its previous mistakes on this front. The deal includes $17bn for loans deemed critical to national security, ie Boeing, while for airlines there will be $25bn in grants and $25bn in loans to passenger carriers. Individuals are eligible for checks up to $1,200 and married couples could jointly apply for $2,400, while an extra $500 is applicable for every child. The handout system is regressive, allocating less money for those on higher incomes, with the cutoff sitting at an income threshold of $99,000 per individual and $198,000 for married couples. US hospitals will be provided $150bn for equipment and supplies with a further $16bn to replenish the nation’s medical stockpiles and $3.5bn to expand production and development of vaccines. Unemployment insurance will be increased by $600 a week for four months, while those who have no income and no social security will also receive payments. The bumper bill also gave a quick win to the Democrats with language blocking any government loans to businesses owned by the Trump family, while businesses also owned by any member of Congress, heads of executive departments and Vice President Pence will also be blocked. Despite much attention to the airline assistance package, JP Morgan said they would likely shun the $25bn in lending offered to them as they have access to other capital – more to come on this at a later date. S&P futures point to a lower open today, sentiment that was also shared in European equity markets this morning, with mounting fears about the spread of the outbreak. Weekly initial jobless claims will be released today at 12:30 GMT, offering markets the first look at the nationwide impact of the coronavirus outbreak on the jobs market. The median forecast submitted to Bloomberg is for more than 1.6 million jobless claims. However, some estimates run far higher, such as from Morgan Stanley economists, who expect the number to reach a record 3.4 million.


The loonie joined the Norwegian krone in topping the G10 currency board yesterday as the petro-currencies began to reclaim the substantial ground lost over the last few weeks due to the dollar crunch and oil market sell-off. The Canadian dollar was aided by the news that the Senate had approved Trudeau’s bill of CAD$107bn, up from CAD$82bn last week, as the Prime Minister announced a new income replacement scheme for those affected by the virus. The program will provide CAD$2,000 a month to individuals who have lost income due to the virus, with payments due to last as long as four months. The bill now awaits royal assent but timing is critical as Canada’s unemployment level rises above 1 million. Last week, 929,000 applications for unemployment benefits were recorded with only 143,000 processed. The Canadian government has reallocated 1,300 civil servants from other parts of the government to help process claims quicker with an online system set to be in place by April 6th. Yesterday’s positive sentiment, as the dollar broadly weakened against all G10 peers, hasn’t been shared in today’s session. Both NOK and CAD sit marginally lower against the US dollar this morning as oil prices fall another 4%. The fall in crude prices comes as the US fiscal stimulus bill omits the $3bn to buy US crude to fill the US Strategic Petroleum Reserve with 77m barrels of US shale. The fall in demand stimulus has dramatic repercussions, no matter how small, in the current market where some North American oil products are selling at record lows. Meanwhile, the Bank of Canada unveiled yet further bond buybacks from the secondary market, including the purchases of 2-year bonds this time around. The 4 rounds of purchases ranging from 2-year to 30-year bonds will be spread out between Monday 30th March and Wednesday 8th April.



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