MORNING BID-The promise of another stimulus fix

  • Reuters
  • Forex News
MORNING BID-The promise of another stimulus fix
Credit: © Reuters.

(A look at the day ahead from EMEA deputy markets editor Sujata Rao. The views expressed are her own.)

March 2 (Reuters) - The promise of another fix has helped placate stimulus-addicted markets at least for the time being, with global stock markets rebounding 0.3% after shedding $5.4 trillion last week. Brent futures are back above $50 a barrel, the U.S. 2-year/10-year yield curve is steepening again and bond yields are a touch higher.

Whether the stimulus does anything other than rescue asset prices is another issue altogether -- and let's not forget markets are not too far off their lows. U.S. 10-year government bond yields collapsed to a record low of 1.11% on Friday and stand now at 1.1224%, while German yields are still around minus 0.6%. But Federal Reserve boss Jay Powell's statement on Friday saying the bank will use its policy tools to support the economy helped markets stabilise, then rally. Market pricing for cuts to the Fed Funds rate is aggressive, with almost 100,bp of cuts priced in by the end of the year. A cut on March 18 is a done deal, the question being only whether the cut will be 25 bps or double that. There is even chatter about a coordinated global policy easing initiative as early as this week, albeit none of it confirmed in any way.

But the Fed shift is upping pressure on the European Central Bank, where markets see a 50/50 probability of a 10 bps rate cut next week and are fully pricing in 10 bps cut for April. The Bank of Japan said it would be ready to act and injected emergency funds for banks this morning. Australia and Canada are likely to cut this week too.

Italy, the European country worst-hit by the epidemic and also the most fragile, has meanwhile announced a 3.6 bln euro support package to sectors affected by the coronavirus and said it expects the EU to endorse the package. But Italian shares have slid into the red, having opened more than 1% higher earlier as fears grow about Italian banks which are exposed to the government bond selloff.

European shares are firmer, though, while U.S. equity futures are up almost 2% following the 11% fall in the S&P 500 last week. Chinese mainland shares are up 3.3%. and the Nikkei has leapt 1%, helped by the yen's 0.3% fall.

The U.S. dollar is on the ropes, however, trading at one-month lows, after falling 1.3% last week on the assumption the Fed has more room to cut rates than the rest of the G3. The euro is up 0.4% vs the dollar and Swissie . The Chinese yuan has risen a quarter percent, while an emerging currency index has jumped 0.8%.

But there are other events too. Talks start today between Britain and the EU on a transition agreement and there is trouble at the Home Office, with minister Priti Patel accused of bullying. Sterling has pulled back 0.2% and is down 0.7% vs the euro.

Today's bounce has somewhat overshadowed the terrible Chinese manufacturing Purchasing Managers Index (PMI) on Saturday, which slumped from 50 in January to a record low of 35.7 in February, below levels hit during the 2008 financial crisis. The non-manufacturing PMI was even weaker, almost halving to 29.6 from 54.1 and hinting that Chinese growth will slip under the key 5% mark this year unless there is some kind of swift economic recovery.

Monday sees the release of manufacturing PMIs across Europe and the U.S. ISM manufacturing index as well.

In European corporate news, Finland's Nokia NOKIA.HE appointed Pekka Lundmark, CEO of energy group Fortum FORTUM.HE , as its new chief executive starting from Sept. 1, 2020.

German defence and automotive parts group Rheinmetall RHMG.DE reported record sales and operating profit, driven by its military division whose products include armoured fighting vehicles. Shares are up 0.9%.

Boeing's supplier Senior SNR.L reported a fall in both 2019 adjusted and pretax profits and said it expected 2020 margins to fall as the halt in production of 737 MAX jets weighed on its business.

Just Eat Takeaway TKWY.AS said it has started arbitration proceedings against rival Delivery Hero's move DHER.DE to increase its stake in the company. Just Eat said it broke a standstill undertaking.

And more headlines on NMC Health NMC.L , which said it will ask lenders for an "informal" standstill on debt, as it confirmed the appointment of Moelis MC.N as a financial adviser to assist on talks with its banks and said it hired PwC and Allen & Overy as advisers.

In emerging markets, the main equity index has raced 1.3% higher -- China mainland indexes are up 3.3%, Russia jumped 3.6% and Turkey equities have rallied 2.6%. Regulators have extended until further notice the ban on short selling.

But there are some soft spots still around with Taiwan and Indonesia dropping over 1% while Thailand and Malaysia are not far off those markers.

Emerging currencies are also rebounding, with the index jumping 0.6% in its biggest daily gains since June. China's yuan strengthened 0.1% in offshore trade against a tepid dollar after the central bank set its midpoint below 7 for the first time since Feb. 18. South Africa's rand enjoys some of the sharpest gains, strengthening 0.8% but only after hitting a fresh near-four year high in early trade while South Korea's won matched those gains.

Turkey's lira ground 0.3% higher, with fresh fears over the conflict in neighbouring Syria containing the gains despite a more conciliatory tone from Moscow, where the Kremlin said it hoped Erdogan and Putin would meet in early March and Russia did not want war.

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