March 13, 2020 / 9:51 AM / 19 days ago

Daily Briefing: Friday 13th - what could go wrong?

LONDON (Reuters) - It's Friday 13th so what could go wrong? Thursday set a high bar – world markets had their worst day since 1987 despite a $1.5 trillion liquidity injection from the Fed and the ECB’s announcement of a 120 billion-euro stimulus plus various other measures.

A man wearing a face mask walks past a screen showing the Nikkei index outside a brokerage in Tokyo, March 13, 2020. REUTERS/Athit Perawongmetha

READ: Coronavirus hits politicians, sports and showbiz stars as it spreads across globe

It looks like markets may be getting a little tired of diving – after Asia's initial catch-up fall, stocks have turned positive, Wall Street futures are up 4% and European markets have opened around 4% higher. Oil prices are up 3%, even if this is still looking like their worst week since the financial crisis.

Possibly there’s some conviction policymakers are resolved not to let the problems get out of hand and more liquidity enhancing and calming measures are on the way.

In stock markets, regulators are stepping up to the plate with Spain and Italy introducing short selling bans on tens of stocks. While the ECB and the Fed were unable to stop markets from panicking yesterday, the news flow today isn't bad in comparison with Trump’s shock travel ban on Wednesday.

European shares — after their worst day in history, saw banks jump sharply, with Commerzbank opening 11% higher and other big names from Deutsche to HSBC opening 5-7% higher. Note that troubled Air France drew down 1.1 billion euros of revolving credit facility.

More and more companies are offering insights on virus pain. Broadcaster RTL Group said it was seeing the first cancellations of advertising bookings and an impact on productions, and forecast a decline in profits this year.

Travel group Saga is suspending cruise operations until early May at an estimated hit to earnings of 10-15 million pounds. Also, it ain't Tom Hanks but the CEO of Britain's biggest telecoms group BT has tested positive for COVID-19.

Yesterday’s rout has also shone the spotlight on money markets, where dollar swaps markets implied that demand for dollars, probably from cashflow-deprived non-U.S. firms, had surged to the highest in years. That was seen by some analysts as marking the beginning of the next selloff stage, when market drawdowns morph into money market seize-ups.

Today though, the 3-month euro-dollar cross currency basis swap has narrowed back to a more reasonable 21 basis points after widening to 60bps on Thursday, thanks to the New York Fed’s repo injection.  

ECB boss Christine Lagarde’s comment that the bank wasn’t there to “close spreads” ruffled already jangled nerves. Italy’s 10-year bond yield soared almost 60 basis points yesterday to its highest level since July at around 1.88% — it’s close to those levels now. But in a calmer sign, German 10-year yields are up 10 bps on the day and US Treasury yields are up 5 bps.

On currencies, dollar gains faded for now. The euro remains subdued after the ECB failed to cut rates. The dollar has also cut its gains against the yen to 0.4% versus 0.9% earlier. 

Meanwhile, more policy makers have weighed in -- Japan's central bank pledged to buy 200 billion yen ($1.90 billion) of government bonds and also inject an additional 1.5 trillion yen in two-week loans.

Indonesia central bank is buying 6 trillion rupiah ($405.13 million) of government bonds - double its initial target - and Australia injected an unusually large amount of cash into the financial system.

Norway joined the fray meanwhile with a surprise 50 bps interest rate cut and an offer of additional bank funding — lifting the crown against both dollar and euro.

And South Korea showed what happens when you do nothing – won-dollar swaps surged to a six-year high.

It’s not a good environment for emerging markets and emerging stocks are set for their worst week since 2008, despite managing a 0.1% gain today. Chinese shares closed 1.2% lower and the yuan weakened 0.4%.

Most Asian currencies fell, with the Indonesian rupiah and the South Korean won declining the most. Turkey's lira has steadied, helped by government measures to close schools and universities and hold sports events without spectators. Russia's rouble bounced 1% in line with oil.

— A look at the day ahead from Deputy EMEA Markets Editor Sujata Rao. The views expressed are her own —

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