Oil price continues to decline, China eases monetary policy

Jens Peter Sørensen Danske Bank A/S

Market movers today

Focus will be on the virus developments, especially in the US, where the number of infections and deaths is rising significantly. Meanwhile, the growth rate in new infections and deaths is coming down in Europe, signalling that the lockdown measures implemented are beginning to have the desired effect.

There are not many significant economic releases today but in the euro area the EU Commission economic sentiment indicator for March is released, which will help gauge how much the European economy is affected by the lockdowns.

Overnight, Chinese PMIs for March are released. Consensus expects an increase in the manufacturing PMI to 45.0 from 35.7 and service PMI to 44 from 29.6. It is hard to forecast but it seems reasonable to expect an increase as production went from being shut down to running around 80-90%. Service sector is even more uncertain. While there has been some improvement, it is hard to know how businesses respond.

This week will in general provide evidence of how big the economic toll of the coronavirus crisis is especially in the US, where we get ISM numbers (manufacturing on Wednesday and non-manufacturing on Friday) and the jobs report on Friday (though the numbers were collected before the bulk of the US lockdowns was implemented). There is a big round of supply from Italy, Germany, France and Spain coming to the market this week. The four countries have to sell a gross amount of EUR25bn. However, given the increase in the PSPP as well as the PEPP, the auctions should go smoothly.

Selected market news

The sentiment in the US equity market turned negative late Friday afternoon as the Federal Reserve announced that it was scaling down on the purchases of US Treasuries. This led to a further decline in US Treasury yields and the 10Y US government bond yield moved below 0.70%. However, the US equity market still had it best week since the financial crisis in 2008-2009 and ended up 10%.

The UK was downgraded one notch from AA to AA- by Fitch on Friday. This is due to the significant increase in fiscal spending as a result of the coronavirus as well as the uncertainty regarding the post-Brexit trade relationship with the EU. This is the first downgrade of a sovereign on the back of the coronavirus and the increase in fiscal spending. We have had several reviews of Eurozone countries including France and Spain and neither has been downgraded on the back of the increase in fiscal stimulus.

This morning the Asian stock markets follow the negative sentiment from the US market and the oil price continues to plunge as demand slows down, but supply is increased. The Chinese Central Bank eased monetary policy this morning by cutting the policy rate by 20bp. This is the biggest move in five years and more easing is expected.

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Author

Jens Peter Sørensen

Danske Bank A/S

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