Relief, but...

Overview: Global equities are marching higher. While the Dow Jones Industrials posted its biggest advance since 1933, the US is lagging behind other leading benchmarks. The MSCI Asia Pacific advanced, led by Japan's Nikkei's 8% gain. It was third consecutive gain, during which time the Nikkei has rallied 17%. Europe's Dow Jones Stoxx 600 is up about 3.5% after bouncing 8.4% yesterday. Today looks to be the fourth gain in five sessions and during this period has also recouped around 17%. Of note, the US S&P 500 has posted gains in seven sessions this month and rallied a cumulative 38.5%, but is still down 17%. The benchmark has not risen for two consecutive sessions since February 11-12 but could do so today. Benchmark bond yields are mostly a little firmer, though some European peripheral yields have slipped. The US dollar is trading heavier against the major currencies but the Japanese yen, with the Antipodean and Norwegian krone leading the way (+1.3%-1.7%). The Mexican peso and Korean won are the best-performing emerging market currencies (~1.6%),  while the Chinese yuan, off 0.6%, is among the worst performers. Gold made a new high (~$1642) before reversing and is off around 1.5%.  Oil is firmer and is looking to end a three-day 10%+ decline.  

Asia Pacific

Japan's Government Pension Investment Fund, one of the largest pension funds in the world, announced yesterday it would boost the portfolio allocation of foreign bonds 10 percentage points to 25%. This is around $170 bln decision, though it is not clear the hedge ratio it will employ. Separately, the summer Olympics will be delayed a year and held in 2021 instead. Reports indicate the Abe government is negotiating an economic package of around JPY56 trillion (~$500 bln) that will also include cash payments (~JPY200k-JPY300k) directly to households.

Last week, defying expectations, China's benchmark one-year Prime Loan Rate was unchanged (4.05%), but may cut the deposit rate (1.5%) shortly. It has not been reduced since 2015 and would ostensibly help support lending margins. Reports also suggest China is considering a CNY2000 (~$280) payment to everyone as a pandemic subsidy. Apple reports that it expects to begin re-opening its stores in China in the first half of April. That said, news that Singapore has reintroduced a lockdown as a second wave of infections was detected, disappointed. 

The dollar remains within the range set last Friday against the yen (~JPY109.50-JPY111.50) for the third day running. The upper end has been frayed earlier this week, and March 12 was the last time the dollar traded below the previous day's low. There is an option for $375 mln at JPY111.45 that expires today. The Australian dollar is extending its gains into the fourth consecutive session. It is approaching $0.6100, which corresponds to a (50%) retracement of its slide since March 9 high near $0.6685. A move above there would bring the next retracement (61.8%) into view closer to $0.6235. Against the Chinese yuan, the dollar has been chopping around a CNY7.05-CNY7.12 range for the last several sessions.   

Europe

Proposals for a common corona bond in Europe appear to have been successfully resisted. However, there is more than one way to skin the proverbial cat. Bonds issued by the European Investment Bank and the European Stability Mechanism (ESM) are guaranteed by all members (EU for the former and EMU for the latter). Separately, but related, a plan to grant countries a precautionary credit line of 2% of GDP from the European Stabilization Mechanism is an important evolution.  

The ECB is reportedly considering supporting the commercial paper market. Still, we have not seen confirmation of the claim by the Slovakian central bank governor that an ETF purchase program is under consideration. Of course, in the broadest sense, officials may be exploring all options, but the bar to this seems particularly high. Meanwhile, as we noted in Singapore, where there has been a setback with the coronavirus, Italy's two-day of seeming improvement was snapped yesterday as fatalities soared. Spain's new cases appear to be outstripping Italy.  

Demand for cash is powerful in Europe. The cash demand in EMU jumped by the most since October 2008, while the demand in the UK is so strong that the Bank of England conducted an extra repo operation. The BOE will launch a Contingent Term Repo Facility tomorrow that will cover the quarter-end and lend reserves for up to three months. Starting later today, the UK's Parliament will be shut for four weeks as part of the nationwide lockdown. 

The euro is trading inside yesterday's range (~$1.0725-$1.0890) and is recording the session highs in the European morning. Intraday technicals do not present a strong case for it, but a move above yesterday's high would target the $1.0965 area. It corresponds to a (38.2%) retracement of the losses since March 9 (when it reached almost $1.15).  Sterling is at a five-day high near $1.1975, and the intraday technicals are stretched. A move above $1.20 could signal additional gains toward $1.2100-$1.2130.  

America

The US Senate passed a $2 trillion package late yesterday. Key features include cash payment for low and middle-income earners of $1200 for adults and $500 for children and $500 bln of corporate and local government assistance. About $365 bln is earmarked for small and medium-sized businesses. Unemployment compensation will be increased and broadened. Hospitals will get $150 bln. Companies that are owned by members of the executive and legislative branches will not be eligible for assistance. The next step is the reconciliation of the House and Senate bills. Reports suggest that there is some consideration being given to suspend tariff collections for a period of time, but industry is pushing hard against it.  

Tomorrow the US weekly jobless claims. The median forecast in the Bloomberg survey has risen to 1.5 mln. To put that number in perspective, weekly jobless claims peaked in the Great Financial Crisis near 665k. At the end of last week, Canada's Prime Minister Trudeau warned that Canadian unemployment claims were surging by half a million. Reports yesterday, citing an unnamed official, indicated that now the claims are closer to one million, or nearly 5% of Canada's workforce.  

Last Friday, the US dollar traded between roughly CAD1.4150 and CAD1.4535. Today's range so far is about CAD1.4300-CAD1.4485. It reached the low in the European morning and has steadied. Initial resistance now is pegged near CAD1.44. The greenback eased to a three-day low against the Mexican peso near MXN24.2350. The intraday technicals are over-extended, and a move back toward MXN24.60 seems likely.  

Disclaimer