The hope that stability was starting to form as we headed toward Friday’s close was dashed, with a late sell-off in US markets setting the tone for the weekend – glad that it had arrived, but knowing that Monday was another round.

We’ve seen a slightly calmer mood in FX markets over the last couple of sessions, with the US Dollar giving back a small proportion of its gains. where we’re not seeing this trend though is emerging markets, where relentless demand for dollars and less readily available swap lines has kept local currencies pinned to near record lows. 

The UK took time over the weekend to completely ignore the pleas of the Prime Minister over social distancing and crowded into just about every available open space to enjoy the sunshine. I’m sure there are plenty of reasons people are ignoring the advice, but one of them has to be that Boris just doesn‘t sound that convincing (and even spoke about going to see his mum yesterday, despite his advice to the contrary!) We’re highly likely to get a lock-down in the coming days as a result.

Anyway, if you want someone that does sound convincing in a crisis, Rishi Sunak seems to be ticking a few boxes. He unveiled plans to help millions of people that might otherwise have lost their jobs by agreeing to support 80% of wages upto £2,500 per month. The rough estimate on doing so for three months is put at £77bn and that number is going to increase massively later today when he’s likely to announce measures to help gig workers and the self-employed. It’s far too early to put accurate estimates to the cost of all of this, but analysts are saying that his actions might stop the unemployment rate going to 8% and instead keep it around 6% – though that’s still 700,000 people out of work as a result of this.

The government are also drawing up plans to buy stakes in airlines and other businesses that are being particularly hard hit by the virus. This comes as banks are saying that government backed loan guarantees aren‘t going to be suitable for businesses where cashflows have completely dried up, as any loan given would immediately be deemed impaired. Airlines will probably be loath to give up equity stakes in return, but this actually might not be the worst thing for the government, because at least then they’ve got an asset to put on the other side of the balance sheet – though we saw how expensive that was when they did the same with the banks in 2008

The FT talks about the costs of credit for companies spiralling, despite interest rate cuts and government supported purchasing. The cost of capital has doubled in just a few days and is going to lead to default rates going through the roof: Long term averages on defaults are about 4%, but because of the current situation, coupled with the fall in commodity and equity markets, that could hit 10%. They’re saying that it’s not even the premium to access debt that’s the issue, but that in a lot of cases these companies are as good as shut out of the markets, because nobody is willing to even entertain an offer.

Fed member James Bullard has said that the US unemployment number could rise to 30% next quarter with $2.5trillion in lost income. This speaks to a number of problems, not least how wildly varied forecasts are because nobody really knows anything about how this plays out. Still he’s calling for the kitchen sink to be added to the bailout, but the problem there is that Republicans and Democrats still can’t agree on what that package is. Steve Mnuchin and Nacy Pelosi are due to meet again today, with hopefully another vote on what they’ve agreed to take place around 09:45 EST today.

The UK and the US, along with a host of other nations are pulling out all of the financial stops, but we’re not hearing so much out of Europe. One of the problems they have is on the need to make a joint action plan to get European bailout funds agreed and in place. From a monetary perspective, the ECB has done what it can for now – albeit after some procrastination from Christine Lagarde – now it’s down to a fiscal response and this is a case of convincing the more prudent countries, such as Germany and Belgium that this needs a fiscal bazooka. We’re hopefully of seeing something agreed on Tuesday evening and rolled out incredibly quickly.

Lastly, speaking of procrastination; the International Olympic Committee have given themselves a month to work out what the plan is with the Olympics due to take place in Japan this summer (spoiler alert; it won’t be happening)

Markets are much lower again on the opening, following on from Asia’s open. So here we go again…

Be well.

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