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Bob Mason

Economic Calendar:

Friday, 20th March

German PPI (MoM) (Feb)


The Majors

It was back into the red for the European majors on Wednesday, with the CAC40 and DAX30 sliding by 5.94% and 5.56% respectively. The EuroStoxx600 saw a more modest 3.92% loss on the day.

Economic data took a back seat once more as the market panic returned over the widening shutdown in the EU in a bid to contain the virus.

With the 1st quarter rapidly coming to an end and the EU only just shutting down its borders, there has been a realization that the economic damage is going to be far greater than had initially been anticipated.

Things were no better in the U.S, as demand for the Dollar surged amidst the continued rout in the global financial markets. Oil prices tumbled to $20 a barrel as the markets sold the kitchen sink… For Russia, who were playing hardball with OPEC, it may be well too little too late. The Saudis announced on Wednesday that they will maintain supply at 12.3m bpd levels in the months ahead and that’s going to hurt Russia. Russia’s oil production costs are estimated at around $20 per barrel compared with sub-$10 per barrel for the Saudis…

The Stats

It was a relatively busy day on the Eurozone economic calendar on Wednesday. Key stats included Eurozone trade data for January and finalized February inflation figures.

According to Eurostat,

  • The Eurozone’s trade surplus narrowed from €23.1bn to €1.3bn in January
  • Exports of goods to the rest of the world increased by 0.2% to €184.0bn, year-on-year, while imports stood at €182.7bn (-0.2%).
  • Compared with January 2019, intra-euro area trade fell to €164.2bn, down by 1.6%.

These are January figures, which are yet to reflect any effects of the coronavirus and the EU wide shut down.

Finalized February inflation figures were also brushed aside.

According to Eurostat,

  • The annual rate of inflation eased from 1.4% to 1.2% in February, which was in line with prelim figures. In February 2019, the annual rate of inflation had stood at 1.5%.
  • Italy (0.2%), Greece (0.4%), and Portugal (0.5%) registered the lowest annual rates of inflation.
  • The largest contributions came from services (+0.72 percentage points, pp), food, alcohol & tobacco (+0.41 pp), and non-energy industrial goods (+0.13 pp).

The Market Movers

For the DAX: it was back into the red for the auto sector. Volkswagen led the way down, tumbling by 12.51%, as the markets responded to news of the production shutdown, albeit delayed. Continental and Daimler also saw heavy losses of 6.18% and 5.63% respectively. BMW saw a more modest loss of 2.94% on the day.

It was also a relatively bearish day for the banks, with Commerzbank and Deutsche Bank falling by 1.44% and 1.90% respectively.

Deutsche Lufthansa fell by 2.57% on the day, with the travel and tourism sector continuing to struggle amidst the shutdown.

From the CAC, it was a particularly bearish day for the banks. BNP Paribas and Soc Gen slid by 9.59% and by 9.57% respectively, while Credit Agricole saw a more modest 4.29% loss on the day.

It was also a day in the red for the auto sector, with Peugeot and Renault sliding by 13.09% and by 5.62% respectively.

Air France-KLM fell by a relatively modest 2.79%, while Airbus SE slumped by 22.17% as the outlook for orders darkened even further. From the Dow, Boeing wasn’t far off, with a 17.92% tumble…

On the VIX Index

The VIX rose by 0.71% on Wednesday, marking its 2nd day in the green for the week. Partially reversing an 8.2% fall from Tuesday, the VIX ended the day at 76.5.

Relative to the losses in the U.S equity markets, the gain on the day was modest. The VIX continues to hover at levels last seen during the global financial crisis, however.

The U.S government has yet to shut down its borders leaving the country at risk of a seismic economic shock. For the markets, the bottom line appears to be simple. Don’t just deliver fiscal and monetary policy support, contain the spread of the virus…

On the day, the S&P500 slid by 5.18%, with the Dow taking a heavier 6.3% hit.

The Day Ahead

It’s a quiet day ahead on the Eurozone economic calendar, with no material stats due out of the Eurozone to provide direction.

Central bank and government action will remain the areas of focus, along with the latest coronavirus numbers from Wednesday.

On Wednesday, the ECB announced a €750bn Pandemic Emergency Purchase Programme (PEPP).

  • Purchases will be conducted until the end of 2020 and will include all the asset categories eligible under the existing APP.
  • The ECB also announced that a waiver of the eligibility requirements for securities issued by the Greek government will be granted for purchases under the PEPP.
  • Under the PEPP,
    • Eligible assets will expand to include non-financial commercial paper.
    • The ECB will also ease collateral standards.

The Governing Council stated that it will do everything necessary within its mandate and is fully prepared to increase the size of the PEPP. The Council will also explore all options and all contingencies to support the economy through this shock. This includes the revision of self-imposed limits.

From the U.S, March Philly FED Manufacturing numbers and the weekly jobless claims figures will garner plenty of interest late in the session. The last time initial jobless claims breached 300k was back in 2015…

In the futures markets, at the time of writing, the DAX was up by 51 points, with the Dow up by 50 points. The upside for the DAX was modest considering the latest ECB move…

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