Pandemic Fears Weigh but ECB Repo Helps Rebound

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Risk selloff on pandemic fears
ECB offers repo to non-EU banks
Nikkei -1.22% Dax 0.84%
UST 10Y 0.67
Oil $37/bbl
Gold $1764/oz
BTCUSD $9327

Asia and the EU
No Data

North America Open
USD Durable Goods 8:30
USD GDP 8:30
USD Weekly jobless 8:30

Another V-shaped move in risk assets in European trade today as equities tumbled by nearly one percent on pandemic fears only to rebound sharply on news that ECB opened a new credit facility.

Equities were in a sharp selloff as cases of coronavirus reached some of their highest levels yet in the US sparking concerns that parts of the country may need to shut down again. With Texas and Arizona pushing into very dangerous territory on ICU capacity, the spread of the virus could begin to impact output once again.

But sentiment flipped completely when the ECB announced that it was opening up a repo facility for non-EU banks providing yet another liquidity injection into the system. The news prompted a furious buying spree that took stock index futures back to even by late morning European trade.
Currencies were much quieter but also managed to bounce with USDJPY popping through the 107.00 figure.

It remains to be seen how long stocks can be propped up liquidity injections from central banks as the battle in the markets appears to be a deadly virus versus free money. For now, the allure of free money from central banks trumps any fears of an out of control pandemic but we would argue that the later remains a much-underappreciated risk.

On the calendar today the markets will get a smattering of Q1 GDP data and the latest weekly jobless claims whose market-moving impact is starting to diminish as labor demand stabilizes but if claims numbers don’t show further improvement – or worse climb above the 2M level – equities are likely to revisit session lows as the day proceeds.

Boris Schlossberg
Managing Director

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