16 March 2020
It would be difficult to capture the extraordinary events of the past week in few words, but here’s a summary.
The catalyst was the OPEC+ outcome, which sent the energy market into a tailspin and spilled over to all segments of financial markets. We saw rapid falls in equities, incredible volatility in bond markets, a stunning lack of coordination relating to COVID-19, poor communication from authorities (both political and monetary) and a sense of utter panic on Thursday.
The results? The S&P 500 fell -9.5%, European bourses fell more than 10% and European, non-German yields went through the roof, with Italian 10-year BTPs yield up 65bps in the few hours following the ECB comments.
We could almost be forgiven for forgetting that some sizeable fiscal packages have been announced.
- The US has already signed an emergency spending bill of $7.8 billion, while also planning additional spending and deferring tax payments for individuals and businesses; the latter two measures could be worth an upwards of $200 billion.
- Italy has said it is willing to spend as much as €25 billion.
- The UK Budget saw the Chancellor deploying an additional £30 billion of spending.
On the monetary front, the ECB announced €120 billion of additional bond purchases and a further TLTRO to support credit in the EA. The Fed announced extraordinary repo measures, which amount to $1 trillion per week for the remainder of March. The BOE made a 50bps emergency cut in rates and provided incentives to lend. The BOJ stepped into the repo markets, as did the Bank of Korea, to help liquidity.
Meanwhile, on Sunday 15 March, the Fed slashed rates to zero and announced a $700 billion asset purchase package seeking to provide liquidity and assuage markets. Markets did not react positively, however, and risks of whipsaw moves continue to abound.
Bond volatility, in particular, has been extreme. The fall in the 30-year US Treasury yield was on a par with 2008 moves and, on some days, even greater.