ECB Unveils €750 Billion Emergency Stimulus


Wednesday saw the number of confirmed cases top 200,000 as 20,014 new cases were confirmed worldwide. To highlight the contrasting turn of events, China – the epicentre of the outbreak – only recorded 34 infections, none of which were local transmissions while Italy – the supposed new epicentre – recorded 4,278 new infections. Such has been the progress in containing the spread in China that officials are considering lifting travel restrictions in the ground zero city, Wuhan, if no new cases are detected in 14 days. The UK announced that schools will be closed from Friday and several underground stations will close. First cases were confirmed in Zambia, El Salvador as well as Fiji and Samoa.


The DOW went below its level at the start of President Trump’s term during Wednesday’s session before paring the losses slightly as Congress passed a bill providing some economic relief. As has become the norm lately, trading was temporarily halted as the S&P dropped 7%; the benchmark index has swung at least 4% in either direction for seven straight sessions beating a record set during Great Depression in 1929. The DOW closed 6.30% lower while the S&P and the NASDAQ slid 5.18% and 4.70% respectively. Treasury yields were higher with 2Y and 10Y yields closing at 0.5337% and 1.1915% respectively.


The ECB launched an emergency bond buying programme to the tune of €750 billion following a meeting Wednesday evening. The decision was the latest in an escalating global response to the coronavirus outbreak which is expected to drive economies into recession this year. The programme will support public and private sector securities until end-2020 at the earliest as well as include Greek government bonds as a waiver from current rules was incorporated. Italian bonds were an immediate beneficiary of the decision with BTPS 49s surging as much as 25points in price at the start of trading on Thursday. The euro was little changed having closed at $1.0915 while yield on 10Y DBRs opened higher having shed some 20bps on Wednesday to close at -0.235%.


Asian stocks were little moved by the passage of greater stimulus measures by the US and the ECB as they continued their downward trajectory on Thursday. The HANG SENG was 2.61% lower while the NIKKEI and the CSI were down 1.03% and 0.97% respectively. A 25bps rate cut by the Reserve Bank of Australia, the second in a month, as well as a 90 billion dollar facility to small and medium-sized businesses did little to appease stock markets as the ASX slipped even further on the news to close 3.43% down.


The CBRT shaved a full percentage point on Turkey’s benchmark rate to leave it at 9.75% on Tuesday. This followed an emergency meeting on Tuesday as the Monetary Policy Committee brought forward a meeting originally set for March 19 as global central banks try to avert an impending global recession. While the cut sent real rates to -2.6% – only better than that of Chile, Poland and Hungary – analysts see yet more cuts in store. In additional moves to inject liquidity into the market, the central bank reduced the amount of foreign exchange lenders must park with it as well as pledged to provide lenders who comply with lending targets with liras at 8.25% – 1.5% lower than the benchmark rate! In a move that should also ease pressure on the lira, the CBRT also postponed $7.6 billion of foreign exchange debt payments by exporters for another three months. The lira closed 1.3% weaker at 6.4819 to the dollar while TURKEY 47s were over 4 points lower, trading in the low 71s.


Brazil’s central bank cut the benchmark rate to 3.75% on Wednesday in a bid to stave off the impact of the coronavirus. The 50bps cut, a sixth straight easing move, was made even as policymakers had signalled a pause during the February policy meeting. The unanimous decision was accompanied by a statement saying that the committee recognises that risks have increased, and further economic data would be needed to determine further steps. The real slid almost 2% to 5.1089 per dollar highlighting the challenge the central bank faces as it eases monetary policy. BRAZIL 50s also traded some 11 points down in the low 76s.


South African inflation rose 4.6% YoY in February driven by higher fuel prices from 4.5% in January. Prices rose 1% in the month, the highest since February 2017 as fuel prices shot up 14%. The central bank is however still expected to cut the benchmark rate on Thursday following in the moves of other global central banks and more so after President Cyril Ramaphosa declared a national state of disaster over the coronavirus outbreak with 116 confirmed cases as at Wednesday. The rand closed over 2.8% weaker at 17.0954 to the dollar while SOAF 49s were over 6 points lower, trading in the high 68s.