LONDON (Reuters) - After two days of hefty gains, the market mood has turned a bit hesitant and focus may be moving to how much hurt the coronavirus pandemic is going to inflict on the world economy as country after country goes into lockdown.
On the policy front the news is good – the U.S. $2 trillion stimulus package has been approved and the European Central Bank has given itself unprecedented flexibility in implementing its PEPP 750 billion-euro bond-buying programme.
On the other hand, the virus continues to relentlessly spread, with a 49% surge in U.S. cases over the past two days tmsnrt.rs/2w7hX9T and the global death toll now topping 20,000. Even in China which reported no local COVID cases, the number of imported cases jumped.
What will become more and more apparent from now is the extent of economic damage as the effect of lockdowns start to show up in data. Singapore posted the world's first first-quarter GDP figures -- down an astonishing 10.6% from the previous quarter. A taste of what's to come elsewhere?
U.S. jobless claims later in the day are expected to rise to around a million, versus 281,000 last week, according to a Reuters poll of economists. A significantly higher number, and the $2 trillion stimulus package could suddenly start to look inadequate.
We now have S&P Global ratings agency on the wires warning that a four-month lockdown could cut euro zone GDP by 10%.
In Europe, a survey out this morning shows German consumer morale at its lowest since 2009. In the UK, already battered by Brexit uncertainty, data showed retail sales failed to grow in February - before the virus really hit Britain.
We'll wait to see what the Bank of England says at 1200 GMT, with some speculation it might cut rates into negative territory. After its recent dramatic moves, this looks unlikely. Gilt yields are down however, alongside the rest of the euro zone and Treasuries.
Stocks may just be pausing for breath, having recouped more than $5 trillion in the past two sessions. At present, MSCI’s gauge of stocks across the globe is more or less flat while Wall Street is tipped to open weaker with futures down 1.5%.
Across Asia earlier, Japanese shares fell 3.5% (albeit after rising more than 15% from Monday-Wednesday). Wall Street’s VIX volatility index is up slightly as well.
The positive? The dollar continues its descent; it has lost almost half of last week’s 3.9% rise versus a basket of currencies. Swap markets also imply the dollar funding stress is abating.
Currency volatility has eased further, with a gauge of expected euro-dollar one-month swings now at 9.5% (versus 14.5% on Monday).
But commodity-reliant and emerging currencies are still struggling – despite the weaker dollar, currencies such as the Russian rouble and Mexican peso are down 1% or more.
On the companies front, the U.S. Senate has provided the airline industry with $58 billion in a coronavirus-rescue package, half in the form of grants.
UK airlines - easyJet, IAG-owned British Airways and Virgin Atlantic – are seeking tax breaks to survive the pandemic. Norwegian Air has asked creditors to forego payments for 3 months.
There's a lot more on companies scrabbling for funding to tide over cashflow issues – AirBnB has asked bankers to see if it can extend a $1 billion debt facility while mall operator Intu is asking banks to waive some existing debt covenants.
Profit warnings continue to pour in, the latest is from Britain's Dixons Carphone. Italy's Eni said it would cut capital spending by a quarter this year.
Emerging market sovereign dollar bonds’ average premia to U.S. Treasuries has risen to 568 basis points, from 280 bps last month.
Some emerging markets are using the bond rout to buy back some of their bonds – strangely though Ecuador (which is heading for default) paid a bond payment rather than buying back.
In terms of policy, the Czech central bank is expected to cut interest rates by 50 bps and Mexico will hold its meeting later in the day.
-- A look at the day ahead from EMEA deputy markets editor Sujata Rao. The views expressed are her own —