Five Things You Need to Know to Start Your Day
Five Things You Need to Know to Start Your Day
(Bloomberg) --
Good morning. Markets are stabilizing after Monday’s historic trading day, stimulus steps are being considered and the oil market is staring down the barrel of a price war. Here’s what’s moving markets.
Manic Monday
Markets are stabilizing but just in case any readers of this newsletter decided to start the week under a rock, it was a historic day of mayhem worth briefly recapping. U.S. stocks fell enough to trigger a trading halt, European stocks entered a bear market after the worst plunge since 2008, credit market fear gauges surged the most since Lehman Brothers collapsed and the oil market topped them all, with crude dropping the most since the Gulf War in 1991. Volatility spiked, gold hit a four-year high and even gilts yields went negative. Brace for more on Tuesday, as demonstrated by the move in Treasuries.
The Next Day
The question now is what happens next. Financial markets have made it clear they want to see shock-and-awe stimulus in order to stave off disaster for a global economy contending with the virus outbreak and a collapse in the oil price. Markets are now pricing in the Federal Reserve cutting rates to zero in coming months and asset prices may be buoyed by the U.S. drafting steps to fight the fallout, albeit leaving out airlines for now. And Thursday will be marked in calendars with huge permanent markers as the European Central Bank announces its latest policy decision, with Deutsche Bank and JPMorgan both now expecting it will cut rates ahead of a meeting of European Union finance ministers next week at which the crisis toolkit is set to be dusted off.
Price War
Oil is clawing back some of the huge losses from Monday but settle in for what could be a brutal price battle. Russia’s largest oil producer will pump significantly more crude in April, a clear move to engage Saudi Arabia in what could prove a damaging price war. U.S. Treasury Secretary Steven Mnuchin told the Russian ambassador in Washington that the U.S. wants “orderly energy markets” but the initial signs are that Russia and Saudi Arabia intend to pump more to maximize the price pain for the other. And that's not to mention the impact on Norway, western Europe's biggest oil player which now faces the prospect of interest rate cuts.
Restrictions
Italy's decision to impose restriction measures to try to stop the spread of coronavirus battered local assets, creating a buying opportunity for some, and it has now extended this to a nationwide lockdown. Spain is shutting schools in Madrid after a surge in cases, while the U.K. government doesn't intend to get more restrictive yet as it relies on scientific modeling. Indeed, the U.K. also has to consider an upcoming budget, which could prove a test case for coordinated economic action from the Treasury and the central bank to battle the effects of the virus. There is also the little matter of a draft free-trade agreement before its next meeting with the EU, all while the threat that the virus delays Brexit talks hangs over the situation.
Coming Up…
Euro-area GDP data and industrial production from France and Italy will all be reported and the earnings slate will throw up some interesting names. Informa Plc, the U.K. events and publishing firm, will provide a view on how the global exhibitions market is holding up given the cancellations caused by the virus outbreak, while Standard Life Aberdeen Plc and M&G Plc’s results will show how flows into U.K. funds are faring.
What We’ve Been Reading
This is what’s caught our eye over the past 24 hours.
To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net
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