There’s some good news to start the day: The curve is flattening and active cases have fallen globally for the first time – that includes active cases in the US too, where the number of cured cases has doubled overnight. The Johns Hopkins data now shows five day moving averages to take out some of the noise caused by delays in reporting deaths and cases, particularly over weekends, and the overall trend is encouraging. It’s too early to see whether the gradual re-opening in some European countries is causing cases to increase again, but we guess that data would start to feed through in the next couple of weeks and hopefully give us some sort of indication ahead of the UK government’s next review in early May.

Other good news, if you’re an oil producer, is that oil prices have found a bit of traction. This isn’t the result of a swift correction of fundamentals though, this is the result of Tweet from Trump saying “I have instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea”. The move has pushed oil up on the possibility of increased tensions in the Straits of Hormuz that might constrict oil supply further down the line.
The timing of the Tweet could be deemed suspicious, with Trump failing to get OPEC to do more, not having the storage capacity to buy all of the oil he’s promised producers he would and needing to divert attention away from his handling over Covid-19 and back onto something he feels like his base can get behind – we’re sure that last part is coincidence though. The move doesn’t change the fundamentals in the market, though it may well have shaken out some short sellers who got in on the action late and don’t want to suffer the margin calls, or the possibility that this takes time to head back down.

We’re three for three on good news so far… This time it’s the corporate America where Bank of America are saying that businesses are able to raise finance by issuing bonds at sensible-ish levels once again. The gradual return to the bond market is to raise cash to repay the credit drawn on banking facilities, so even though the money they’re raising won’t be at rock bottom prices like it used to be, it will still be cheaper than their banking lines and also free those up for use if we see any shocks further down the road. This is a situation that echoes what we’ve seen in Europe; if central banks are active in the market and buying these bonds themselves, why wouldn’t other investors get involved, knowing they’ve got a lender of last resort stood behind them.

Speaking of central banks: The ECB delivered on what we’d thought and have allowed junk rated bonds as collateral, but stressed that it was a “temporary measure”. The market approved of the move and the timing of it and moved slightly higher as a result. The timing element is because Italy has a ratings review from S&P published tomorrow and is currently BBB with a negative outlook. In theory they could go to BBB- and still be investment grade, but if S&P deems their situation worthy of a two notch downgrade, they’d hit the Double B’s and that would be a speculative/junk rating.
Until yesterday that would have meant no eligibility for Italian bonds to be laid up as collateral at the ECB and would have caused major headaches for Italian banks, who hold around 20% of all Italian sovereign debt and wouldn’t be able to use what they’re holding as collateral. Worse still, they might have had to take back the bonds they’d already placed with the ECB and repay the cash, something they almost certainly wouldn’t be in a position to do – which makes us think the move from the ECB was borne out of necessity.

In the UK, more than two million employees are on the furlough scheme now, following the launch of the signup platform on Monday with more to come. Mr Sunak’s initial estimates were that 10% of the PAYE workforce might end up on the scheme, which is about 3 million workers. Forecasts from the Resolution foundation are that as many as 8 million might be placed onto the scheme, so there’s still an awful lot of admin for HMRC to get through.

Also in the UK; we heard yesterday that social distancing might last more than a year as Chris Witty gave a pretty detailed explanation of the situation and ultimately until there’s a vaccine or highly effective treatment, government is going to have to make trade-offs in reopening to keep the virus’ force of transmission below 1. Amusingly, Dominic Raab started the talk with ‘light at the end of the tunnel’ talk before Chris Witty delivered his dose of reality.
Speaking of Dominic Raab takedowns; a round of applause to the leader of the opposition who gave a very good account of himself through PMQ’s yesterday. Sir Keir Starmer’s background as barrister, QC and director of public prosecutions set him in great standing to deliver an exceptional cross-examination. It will be interesting to see if Boris can get away with the quips he used to use to deflect Jeremy Corbyn once he gets back to the despatch box.

Today all eyes are going to be on the press conference following the EU summit. It won’t be until this evening, but the outcome of the meeting will have huge implications to European markets and these will manifest through the futures markets. The hope is that they can compliment the ECB’s swift and strong action with some truly meaningful policies of their own. However, the risk is they try and dress up half-hearted-at-best action plans and the market sees right through them.

Be well.


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