Euro Area March PMIs Plunge as Governments Lock Down Non-essential Services to Fight COVID-19


42,464 new cases of infection were recorded on Monday as cases of infection continued to surge worldwide. The UK finally announced a lockdown similar to the measures in Europe with only essential services such as food stores and pharmacies remaining open and gatherings of more than two people essentially banned. Interestingly, the police will be allowed to enforce the measures in a turnaround from the measures announced just Friday last week. Italy appears to be cooling in terms of new cases which should be welcome news as confirmed deaths are almost double those recorded in China. China recorded 78 new cases on Monday as the rate of new infections plateaus prompting authorities to relax restrictions on entry and exit from Hubei province where Wuhan is situated; Wuhan itself is set to have its lockdown lifted on April 8, more than two months after the city was sealed off.


Rapidly rising cases of new COVID-19 infections in the US weighed on investor sentiment on Monday to overshadow the Fed’s latest plan to support the economy. Confirmed cases as at Monday stood at 42,848 having just been 3,487 a week earlier. The Fed said it would purchase an unlimited amount of Treasuries and mortgage-backed securities having pledged $700 billion last week. The NYSE’s first day of trading without floor traders saw the DOW shed 3.03% while the S&P and the NASDAQ closed 2.92% and 0.27% lower respectively. Yield on 10Y USTs closed lower at 0.7863%.


The latest PMI data for the EU paints a very gloomy picture for the future as governments have clamped down on non-essential business activity to stem the spread of the coronavirus. The Composite PMI plunged to an all-time low of 31.4 with services – the mainstay of the eurozone economy – plunged from expansion territory to 28.4; manufacturing slid modestly by comparison to 44.8 from 49.2 in February. The figures came on the heels of the announcement of a €750 billion package by Germany to cushion the economy. The euro closed higher at $1.0726 while yield on 10Y DBRs closed lower at -0.375%.


Asian stocks were higher on Tuesday following the Fed’s move to support the US economy as Congress delays passage of $2 trillion aid package. The NIKKEI led gains, up 7.13% while the HANG SENG and the CSI closed 4.45% and 2.34% higher respectively. The ASX also rode on the optimism to rise 4.17% despite March PMI data showing a sharp decline in services at 39.8 from 48.4 previously; manufacturing PMI was however higher at 50.1 from 49.8.


Turkish banks on Monday announced that they would suspend loan payments for customers, the latest move in the drive to minimise the economic fallout from the coronavirus. State banks as well as private lenders such as Isbank announced the government-backed measures that will see consumers postpone payments by 3 months while also pledging to restructure corporate loans giving grace periods as long as 12 months. The move follows a 100 billion lira package announced by President Erdogan last week that will include tax cuts, payment deferrals and pension increases. The lira closed weaker at 6.5618 to the dollar while TURKEY 47s were lower, trading in the mid 71s.


The IMF said Argentina needs up to $85 billion in relief from creditors to put the economy back on track. The IMF report said any restructuring will almost certainly involve no foreign currency debt service payments in the near-to-medium term, the type of restructuring the government would want. In a statement after the report, Economy Minister Martin Guzman said economic projections for 2020-21 would have to be revised as he gave the first broad economic estimates. The government expects a 1.5% contraction on the economy in 2020 with a primary fiscal deficit equal to 1.5% of GDP; the country expects to have a primary fiscal surplus equal to 0.8% of GDP by 2023, a forecast in tandem with IMF projections as well. The peso closed slightly firmer at 63.6456 to the dollar while ARGENT 48s were trading in the low 24s.


Reports suggest the Russian economy could shrink as much as 10% in 2020 if a full lockdown has to be instituted. This is according to sources familiar with the discussions which also forecast an annualised 30% contraction in Q2. Should the worst-case scenario unfold it would mark an even deeper contraction than the -7.8% suffered during the 2009 global crisis. The central bank is still forecasting at small expansion this year according to Governor Elvira Nabiullina as the bank held rates at Friday’s MPC meeting. The central bank said a rate increase is still possible at the next meeting if risks to financial stability increase. The ruble closed firmer at 79.5681 to the dollar while RUSSIA 47s were lower, trading in the high 113s.


Kenya’s central bank cut its benchmark rate to an 8-year low on Monday following the trend of global central banks aiming to limit the impact of the coronavirus on the economy.  The MPC cut 100bps off the benchmark rate to 7.25% while at the same time cutting the cash reserve ratio to 4.25%, releasing 35.2 billion shillings in the process for banks to support borrowers. The bank also cut its 2020 growth forecast for the economy to 3.4% from a previous baseline estimate of 6.2% as the country’s main foreign currency earners horticulture and tourism have been affected by the coronavirus. The shilling closed weaker at 106.85 to the dollar while KENINT 48s were lower, trading in the mid 82s.