US Prepares $850 Billion Stimulus Package as Coronavirus Hits All States
COVID-19 UPDATE
Confirmed coronavirus infections are likely to pass the 200,000 mark on Wednesday following a surge on Tuesday which saw 14,676 confirmed cases globally; of these, only 21 were in China. All 50 states in the US now have confirmed cases after West Virginia confirmed its first case on Tuesday as the government submitted a proposal for an additional $45.8 billion to fight the spread having already allocated $8.3 billion previously. The virus showed up for the first time in such countries as Gambia, Montenegro as the EU shut its external borders for 30 days.
UNITED STATES
US stocks rebounded from Monday’s plunge on Tuesday amid moves to shield the economy from the effects of the coronavirus by the White House and the Fed. The Trump administration is expected to call for a stimulus package of $850 billion that involves payroll tax cuts among other measures and President Trump signed off a deferral of $300 billion worth of taxes to the IRS. The Fed also opened up commercial paper funding on a short-term basis to help restore liquidity into the market. The NASDAQ led gains, up 6.23% while the S&P and the DOW rose 5.99% and 5.19% respectively. Treasury yields were higher with 2Y and 10Y yields closing at 0.4925% and 1.0784% respectively.
UNITED KINGDOM
Chancellor Rishi Sunak on Tuesday announced new measures to help the economy stave off effects of the coronavirus in addition to those already announced in last week’s Budget. The Chancellor announced £330 billion in state loan guarantees as well as a further £20 billion of handouts to such businesses as pubs and restaurants. Speaking at a press conference alongside Prime Minister Boris Johnson, Sunak said the government would go all out to protect businesses “on a scale unimaginable only a few weeks ago”. The pound closed lower at $1.2055 while yield on 10Y and 30Y UKTs closed higher at 0.554% and 1.055% respectively.
EUROPEAN UNION
EU car sales had another terrible month in February to mark their worst start to a year since 2013 according to figures released by the European Automobile Manufacturers Association. New vehicle registrations declined 7.2% in February following a drop by a similar margin in January and prospects look bleak given the closure of plants and dealerships by such manufacturers as Volkswagen AG, Daimler AG and Peugeot-maker PSA Group. BMW AG added to the worsening sentiment for the car industry in an update on Wednesday, warning sales would be significantly lower than 2019 levels and profitability in turn weakening. The euro closed weaker at $1.0997 while yield on 10Y and 30Y DBRs closed higher at -0.434% and -0.137% respectively.
ASIA
Asian markets opened higher on Wednesday mirroring moves on Wall Street on Tuesday as President Trump promised aid to help the US economy through the coronavirus outbreak. Those gains were however erased as the session wore on with all indices closing in the red. The HANG SENG shed 4.18% while the CSI and the NIKKEI lost 1.83% and 1.67% respectively. The ASX had however opened lower and further retreated to close 6.42% under.
MENA
Lebanon defaulted on its first-ever bond after the 7-day grace period expired on the $1.2 billion LEBAN 20s that were due for redemption on March 9. As the financial turmoil continues, the country is considering loosening the exchange rate peg. Under the proposal, holders of dollar accounts will be allowed to withdraw at the rate of 2,000 pounds per dollar; the peg officially stands at 1,500 per dollar while on the black market the rate is over 2,500. LEBAN 5.8 04/14/20 was trading over a point lower on Tuesday in the high 21s.
LATAM
The real closed at 5.0092 to the dollar on Tuesday to mark the first time it has crossed the 5 mark for the embattled currency. The continued weakening poses a predicament for the central bank ahead of its next rate meeting as global central banks cut rates to help mitigate the effects of the coronavirus. For Brazil, an additional cut would add further pressure on the real while markets are betting on at least 50bps of easing and anything less would likely hurt the rates market. The currency is the worst-performing in the world this year and is down about 20% so far. BRAZIL 50s were lower, trading in the mid 87s.
SSA
Nigerian inflation rose to its highest level in some two years in February coming at 12.2% YoY from January’s 12.1%. The rise was on the back of increases in food costs amid continued border closes; food inflation came in at 14.9%. The continued acceleration in inflation means the central bank will have to resort to other measures than easing the benchmark rate to fend off the impact of the coronavirus. A 50% increase in VAT as well as an upcoming increase in electricity tariffs should put additional pressure on inflation. The naira was about flat trading at 368.17 to the dollar as were NGERIA 49s trading in the mid 73s.