G10 and EM FX are trading with a broad risk on vibe this afternoon, with the dollar lower against AUD, NZD, NOK and CAD, and enjoying some modest gains versus JPY and EUR.
No individual bit of news flow seems to be behind this price action, although virus death rates in Italy, Spain, and other hard-hit areas suggest that lockdown measures are beginning to stabilize the outbreak globally, even as hotspots like London and New York see rapid growth. In the EM space, ZAR is the best performer in percentage terms. This is less impressive once the fact that the pair reached an all time high in the early hours of this morning is factored in. Crude oil has largely managed to hang on to last week’s rally, despite Donald Trump’s meeting with crude oil executives on Friday failing to amount to any action in terms of either production cuts or threats of tariffs on imports.
A few thoughts on this week’s key events:
Eurogroup conference call likely to confirm ESM deployment, but will this be enough?
After the past weeks of discussion and a series of comments from European finance ministers, tomorrow’s Eurogroup call seems likely to feature details on the use of the European Stability Mechanism to respond to the macroeconomic impact of the coronavirus pandemic, as well as other measures. The main thrust of the measures is likely to be easier access to ESM loans for businesses and expanding European Investment Bank loans to small and medium enterprises. Additional, more activist areas of discussion may be an Unemployment Insurance scheme of the sort floated by the European Commission, or a “Rescue Fund” of the sort promoted by Bruno Le Maire in recent weeks. However, size and breadth will be key for judging if the euro-wide stimulus will be effective in encouraging a broad recovery after lockdown measures end.
FOMC minutes to shed light on how the Committee came around to “whatever it takes”.
By almost any measure, the Fed’s interventions in financial markets over the past three weeks represent the most aggressive policy actions taken by the central bank in its history. Wednesday’s FOMC minutes will, therefore, be closely watched to understand both the Fed’s thinking about the real impact of the virus shutdown, but also for possible future escalation. In particular, volatility in bond markets and stress on US dollar funding seem to have prompted an aggressive response from the Fed.
Key OPEC + players have no good choices.
The delayed OPEC + meeting on Thursday will take place in the shadow of last week’s extraordinary series of verbal interventions from Donald Trump, which culminated in claims that Russia and Saudi Arabia would cut production by 10-15 million barrels. The price war between Saudi Arabia and Russia deepened in late March as Saudi Arabia aimed to increase production to record highs, and both sides blaming the other for a collapse in talks earlier in March. Crude demand is likely to have fallen by around one third due to the coronavirus outbreak. Even if the two sides can agree to production cuts in principle, the sheer size of the demand drop may mean that any cuts agreed are insufficient to prevent further slides in crude oil prices. Interestingly, Norway and the Canadian state of Alberta will be participating in Thursday’s meeting, hinting at the possibility of broad production cuts.
G10 FX rallies against USD
Crude rally risks collapse if OPEC + does not deliver
Author: Ranko Berich, Head of Market Analysis.