The European Central Bank (ECB) loves inelegant acronyms. To LTROs and TLTROs we can now add PEPP - the Pandemic Emergency Purchase Programme. As cumbersome as it sounds, the €750 billion fund looks more like a bazooka than anything they've done thus far. Christine Lagarde and co knew they had to step it up and have. The asset purchase programme will loosen existing rules to cover non-financial commercial paper. The spread between Italian and German bond yields came back in to 188bps, after blowing out to 320bps. Italian yields have tumbled and across Europe sovereign bonds yields are lower. Ms Lagarde, I feel, realises it is indeed her job to prevent spreads widening and it seems she has finally got the message through to the market that the ECB is going to do 'whatever it takes'.
Elsewhere we see stimulus efforts stepped up. White House economic adviser Larry Kudlow has talked up the prospect of the federal government buying equities as the US senate passed its second coronavirus bill, at the same time as they rush to approve a third that will be worth $1.3tn. Relief is coming thick and fast: The Reserve Bank of Australia cut rates 25bps and starts QE; Japan eyes $276bn package of support; South Korea launches new package worth $40bn, and Brazil cuts rates 50bps to 3.75%.
Yesterday, the Dow and S&P 500 finished 5-6% lower, and trading was halted for 15 minutes at one stage as the 7% circuit breaker was triggered. Asian shares followed lower overnight.
European equities are broadly higher after the ECB fired its bazooka, with the CAC in Paris leading the way with a 3% rally half an hour into trading. Volatility remains, however, and rallies are yet here to be sold. I prefer to look for stability over a few days than latch onto a single-day rally.
The FTSE 100 held the 5,000 level yesterday and the 4900 low was not even tested, which offers a flicker of hope. If you have a list of things you're looking for to decide whether the bottom is in, then that would be a tiny tick in the column. This morning the FTSE opened up a touch higher to reclaim the 5100 level. I'm not sure these stimulus efforts are enough yet to help the market fully bounce, but we are looking for signs of stabilisation with smaller daily moves in the main indices, and for certain sectors to start to respond better. Telcos in Europe rose 2% in early trade, while Oil & Gas was up 1% as crude prices ripped higher after yesterday's collapse.
In FX, the pound suffered one of its worst days in a long while and crashed to its weakest level against the US dollar since 1985. This is largely about a dollar funding squeeze, which central banks are desperately trying to fix to little avail at present. If you look at the worst performing currencies over the last few days they are the NOK, AUD, GBP and NZD, which funnily enough are the most risk-on currencies in the world. Sterling has become a risk-on, risk-off play - RoRo in the trade. As HSBC analysts stressed yesterday in a note, Global Britain means a Global GBP, which makes it way more exposed to risk sentiment moves than it was in the past.
This morning, GBP/USD still looks very shaky and struggled around 1.15 still in early trade. Need to put a bottom in this before we can start to talk about levels - the move has taken out the last vestiges of support and now the road is open. Overnight the pair put in a series of lows at 1.14750 and this has held and set up a push back to 1.16 in early trade before a quick retreat to 1.15 was made. Need to take out 1.16 and recover yesterday's substantial support-turned-resistance at 1.1650.
US crude prices endured their 3rd worst day ever yesterday - WTI sank 24% to take a $20 handle. Today prices are rebounding auto $23, helping lift some of the majors, but the picture still looks incredibly bleak for crude prices.