Not sure I’ve ever linked to an article in the Sun before, but we do live in strange times… Their political editor, Tom Newton Dunn, writes that coffee shops, estate agents and restaurants could be the first to re open if a plan drawn up by a Tory peer and the chairman of GlaxoSmithKline is brought into play by the government. These are seen as places where it is possible to implement social distancing as well as giving an immediate boost to the consumer spending cycle. This comes as we’re likely to see the lockdown extended today for another three weeks. Numbers out from Barclaycard on shopping trends were interesting, with consumer spending in March down 6% versus the year before, though spending in supermarkets was up 21% in March versus February. The overall numbers from the British Retail Consortium show that the overall consumer spending number for March was down 3.5%, which wasn’t as bad as feared.

Germany are going to start re-opening from next week and then schools could be back as early as May the 4th. Germany’s shutdown wasn’t as complete as many other European countries, but they’re still going to be approaching the task very cautiously. Restaurants and bars will remain closed and there’s a ban on large gatherings, such as football matches, until the end of August. Germany’s exceptional ability to test, trace and isolate those suspected of having the virus is the reason that they’re showing so much resilience compared to other countries. Their vast amount of testing is perhaps also showing that the virus is less virulent when well-managed, with 1.5 million tests confirming 133,000 cases resulting in 3,600 deaths. Compare that to the UK with 314,000 tests, 99,000 positives and 13,000 deaths.

Markets are arguing with regulators in a few European companies where the decision has been made to extend the ban on short-selling. Austria, Belgium, France, Greece, Italy and Spain all banned the practice of shorting (borrowing shares, selling them, then buying them back at a lower price to give back to the lender) in a bid to stabilise markets and have extended that ban until the middle of next month. There are questions over the efficacy of the bans in the first place, as these markets fell pretty much in tandem with Germany, where the practice wasn’t banned. Fund managers argue that without shorts in the market the overall cost of trading increases for everyone, as you effectively take liquidity out of market by not allowing shares that would otherwise be held to be traded.

Across the Pond, we’ve seen data that shows foreign holdings of US treasuries hit a record high in February. This was before Covid really kicked off in the West, but interestingly China still increased its holdings of US assets despite them being in the throes of their lockdown then. The increase was counter-intuitive, as plenty of people expected them to sell out of the treasuries and use those dollars to buy their own currency as a way to prop it up. We’ll probably see a lot of emerging markets having sold down their holdings in the March and April data as they’ve had to intervene in the FX markets to keep their currencies above water (albeit barely). The demand for US treasuries in February was at a time when their interest rate was ‘high’, up at 1.75%. this is now just 0.25%, but relative to other major economies, their bonds are still showing positive returns, so investors who aren’t in emerging markets have little choice but to keep buying.

Speaking of choice in the bond markets; people are choosing not to believe that Europe will come up with a mutual solution for their own crisis and we’re starting to see spreads widen between German debt and that of the periphery. Italian bond yields have spiked higher in the last couple of days as the European response looks less like ‘we’re in this together’ to ‘each person for themselves’. We’re still a long way away from the 2013 debt crisis levels and not likely to get back there anytime soon, but markets are nervous with Christine Lagarde’s comments that the ECB are not there to manage the spread between governments’ debt. This is one for once this is all over, but we’d not be surprised if Italy were Next-it.

Trump is set to unveil his back to work plan later today and has threatened ‘strong action’ against those states that don’t comply. His plan is apparently going to be that states can lift their isolation policies ahead of the May 1st review, at their own discretion. This move is pretty sinister, in that it allows Trump to wash his hands of the economic consequences of staying shut and allows him to point fingers at those that do stay closed to preserve life – and there will be states that will want to stay shut as they aren’t yet at their peaks and are concerned that they won’t cope, particularly as with all this rhetoric of getting back to work, people will naturally start to ease back on their compliance with the lockdowns. This CNN article is well worth a read.

South of the border; Mexico has just had their credit rating cut to one notch above junk. The BBB- rating does come with a stable outlook, so we don’t expect it to fall further for the time being, but it’s still less than helpful for them.

That’s it from us today.

Be well.

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