It took just 7 days for confirmed cases to double last week with over 700,000 infected as at Sunday when there were just over 330,000 last Sunday. Governments globally have enacted lockdowns with the latest being Moscow in Russia as well such cities as Lagos and Abuja in Nigeria. The rate of new infections in China has plateaued with March new cases averaging about 50 per day. The US is now firmly ahead in terms of new cases with about 140,000 confirmed as at Sunday while second-placed Italy was at about 98,000; the US death toll remains low however – about 2% – while in Italy the mortality rate is about 11%. The number of confirmed cases in the UK was double Wednesday figures as at Sunday with several key members of government including Prime Minister Boris Johnson testing positive for the virus.
US stocks closed sharply lower in Friday to end a 3-day streak of gains despite Congress approval of the $2 trillion stimulus package. The DOW led the slide, down 4.05% while the NASDAQ and the S&P shed 3.78% and 3.36% respectively. Stocks were however higher for the week, posting the best figures since the 1938 for the DOW at 12.8% while the S&P and the NASDAQ had their best week since the 2008-09 financial crisis at 10.8% and 9.1% respectively. Yield on 10Y USTs closed 17bps lower at 0.6746%.
Fitch downgraded the UK’s sovereign rating on Friday to AA from AA- citing the impact of COVID-19 on economic activity. As was largely expected, investors shrugged off the news with yield on 10Y UKTs opening some 8bps lower on Monday continuing with the downward trajectory from last week. Quantitative easing by the Bank of England should help keep yields low as should expected downgrades across other IG sovereign issuers. The pound closed higher at 1.2460 to the dollar while yield on 30Y UKTs opened some 7bps lower on Monday having closed at 0.775% on Friday.
The ECB called for banks to halt dividend payments until October at the earliest on Friday, in a bid to retain capital as the coronavirus wreaks havoc. European banks had received some relief from the ECB earlier in the month after they were allowed to tap into capital buffers as well as have more time to deal with bad loans. The move could see up to €30 billion of extra capital for banks should they follow the recommendation. Italy, the worst-hit European country by COVID-19, saw several banks take up the recommendation including UniCredit and Banca Generali Spa while some like Intesa Sanpaolo said they would review it at their next board meetings. The euro closed higher at $1.1075 while yield on 10Y DBRs closed lower at -0.474%.
Asia stocks started the week lower as countries reported a new wave of fresh infection of COVID-19. The NIKKEI and the HANG SENG shed 1.57% and 1.316% respectively while an announcement that China would be coming with fresh stimulus was not enough to stop the CSI from sliding 0.90%. Top officials signalled a willingness to widen the fiscal deficit and sell more debt but final details were scant; the official fiscal deficit has not exceeded 3% of GDP for more than a decade. The ASX closed 7.00% higher however after the Australian government announced a A$130 billion (USD80 billion) jobs rescue plan with wages subsidised to help employers retain staff.
Manufacturer confidence in Turkey tanked in March by magnitudes not seen since the global financial crisis, marking the first piece of key data highlighting the toll of the coronavirus on the economy. The Real Sector Confidence Index shed 8.2 points into pessimism territory at 98.6 with capacity utilisation also falling according to the central bank report. The government has shut down over 200,000 businesses in a bid to slow the spread of the virus which had over 9,000 confirmed cases as at Sunday. The lira closed weaker at 6.4542 to the dollar while TURKEY 47s were lower, trading in the mid 77s.
Russia should move towards a nationwide lockdown in the coming days with Prime Minister Mikhail Mishutsin calling for heads of other regions to follow in Moscow’s footsteps. Moscow ordered its residents to stay home starting Monday being the hardest-hit with its cases making up two-thirds of the country’s total. President Putin had announced last week that this week would be a non-working one but hadn’t committed to measures such as restriction of movement. The prospects for the economy do not look particularly favourable amid a price-war on the oil front with Saudi Arabia which should further hurt revenues. The ruble closed weaker at 78.8055to the dollar while RUSSIA 47s were lower, trading in the low 124s.
Moody’s finally downgraded South Africa’s sovereign rating on Friday thus taking away the country’s last remaining IG rating. The country’s assets tumbled as a result with the rand breaching the 18/dollar mark for the first time on Monday morning. An index of bank stocks on the JSE shed over 6% in early trading to continue with the slump from last week while yield on 10Y SAGBs rose over 50bps during the same period. Barclays estimates that as much as $6 billion could move out because of forced selling as the country falls out of FTSE World Government Bond Indexes. SOAF 49s continued their slide, shedding 3 points in early trading on Monday to trade in the low 73s.