MARKET SITUATION
Asia
In Japan, strong improvement in the trade balance with a 4% rebound in exports and a 10% drop in the volume of imports over the month. Domestic demand seems to be heading in the wrong direction. With two consecutive quarters of declining GDP, Japan would enter a technical recession.
Asian indices, particularly Japanese and Chinese, are globally impacted by the COVID-19. Taiwan has announced the closure of its borders, and Hong Kong should follow suit very soon.
United States
- In the United States, publications show disappointing retail sales and, more generally, a slowdown in consumption, even before COVID-19.
- Decrease in the confidence index of real estate builders.
- The Trump Administration unveils its $1.2 trillion fiscal stimulus package amid disagreement between Democrats and Republicans. A check for $1,000 is expected to be sent to U.S. households in two installments (April and the second installment could be scheduled for May). The entire plan would be divided as follows: $500 billion for US households, $300 billion for loans to US SMEs, $200 billion for an emergency fund to help certain industries, and $200 billion in tax deferrals.
- The Fed's announcement of a buyback program.
- J. Biden wins all 3 primaries. We're moving towards a Biden/Trump duel.
Europe
In Germany, deterioration in the German ZEW Investor Sentiment Index, especially the component on the future situation. We are waiting for the Markit and IFO indexes to be released next Tuesday and Wednesday. The indices rallied overall yesterday, driven by the support measures taken in France, the United Kingdom and Spain in particular. These measures are now equivalent to nearly 1% of European GDP.
OUR ANALYSIS
If the crisis was initially managed by trying to support supply by financing measures based in particular on the intervention of central banks, the markets did not consider these measures to be sufficient and we have moved on to another mode, where States must be able to compensate, through their deficits, for the economic impact of this crisis which, on the one hand, is proving to be much more severe due to the confinement of many countries, particularly in France, where the macroeconomic impact is greater due to the halt in production forces, as well as the risk of impending confinement in the United States, and on the other hand, due to fears of a "wealth effect", with spread spreads that are causing the markets to worry about the self-realising nature of the financial crisis due to the deterioration of the markets, which is reducing companies' financing capacity.
Over the last few days, we have seen a new phenomenon, namely that the relaying of public deficits to offset the impact on demand, with the helicopter money initiatives, has had the effect of creating tension on bonds with increases of 40 to 50 bp on core rates, and Europe is weaker in this context because it is at a standstill, but also because this increase in core rates is compounded by tensions on spreads in peripheral countries.
Hence today's debate on how central banks could buy up public debt to absolutely avoid a continuation of this rise in interest rates, which would be bad news for all, for the most indebted countries and for companies.
In this context, we remain conditioned to this ability to limit the fire and awaiting an inflection point of new cases of COVID-19. If the correlation with what happened in China is good, we are very close to reaching this inflection point in Italy, as we are approaching the 21st day when this inflection point occurred.
New cases of COVID-19 reported per day, European countries & China
