Thought For A Day
Archives of “March 2020” month
rssIATA says “cash is pretty much running out” for many airlines today
The collapse of the airline industry is unprecedented
I’m shocked by the speed of the crunch in the airline industry. The US is preparing a $50 billion package for its airlines and it appears virtually every airline is on its knees.
It’s a complete and sudden stop in the industry but I would have imagined they could weather at least a few weeks of this.
IATA says three-quarters of airlines have cash to cover less than 3 months of non-avoidable fixed costs.
Two things to think about:
- The bailout for airlines sets the bar for other industries
- Airlines might not be the only businesses with far less cash and liquidity than we thought
Three-month US dollar LIBOR up 16.25 bps in largest jump since 2008
There is a dollar funding squeeze underway
I had hoped the the larger and longer swap lines the Fed announced on Sunday would alleviate the funding squeeze but the demand is overwhelming. There is a huge amount of leverage in the system and it’s unwinding more-quickly than ever. In addition, emerging market money is rushing into dollars.
EUR/USD three-month FX swap spreads today briefly blew out to 124 basis points — the widest since the peak of the eurozone crisis and it compares to 20 bps in early March.
“What it tells you is that somebody is deeply deleveraging and is in real need of dollars,” said Sebastian Galy, a senior macro strategist at Nordea Asset Management, told Reuters. “There is blood on the street we just don’t know where it is.”
The thing is, the moves become self-reinforcing. USD/CAD, for instance, is making a big move higher today. Canadians see that and start rushing into US dollars.
I’m starting to think we’re on the cusp of big moves in FX. It’s also deeply concerning for the banking sector.
Trump administration to seek about $850 billion to buffer economy – report
Washington Post reports
This ties in to the earlier report here by Politico. Once again, the report here highlights that most money will be put towards a payroll tax cut and that just isn’t going to fly and likely will not help all too much once unemployment picks up – if it is even passed.
You can check out the full report here.
EUR/USD falls to fresh two-week lows as dollar gains gather pace
EUR/USD looks for a firm break under its key daily moving averages
It looks like the blowup in funding pressures today is helping to settle the debate earlier in the day on which side EUR/USD may be looking to break out.
As mentioned then, one of the moving parts is dollar funding pressures but the blowup today has certainly seen a massive surge of flows into the greenback this morning.
EUR/USD has now fallen by 1.5% to fresh two-week lows and is looking for a firm break below the 100 and 200-day moving averages @ 1.1068 and 1.1097 respectively.
Keep a break under those levels and the bias in the pair turns more bearish once again. Further support is now seen closer to 1.0980-00 next.
European bond yields continue to rise over the past week
10-year German bond yields rise to its highest levels in a month
Meanwhile, 10-year French and Spanish bond yields have both climbed to their highest levels since May 2019 to start the day. This comes as we also see Treasury yields rebound higher, with 10-year yields up by 10 bps to 0.82% currently.
It is tough to try and make sense with what is happening in the market because things change so quickly but I would argue that the selloff in European bonds isn’t exactly a good sign for the euro currency in general.
I would say the rise in Treasury yields represents a bit of a disconnect because the move higher there reflects more closely the slightly better risk mood today – which is also helping USD/JPY to stay underpinned, alongside gains in the dollar today that is.
This is pretty extreme. Short gold, long silver is how you play this.
Corona Virus + POTUS Response is Impacting 2020 U.S. Presidential Election Odds
The Philippines has suspended FX and bond trading
Trading, clearing and settlement of foreign exchange and fixed interest suspended as of today
- until further notice
There are plenty of calls for this to happen in major markets also. Be aware if you are in a position and the market is shuttered you will be unable to exit until it reopens. There may, of course, be work around hedges to be used.
Japanese business sentiment has fallen to a decade low (Reuters Tankan)
Bad data from the March survey, which is not surprising. ‘Highlights’ via Reuters report:
- manufacturers’ sentiment index -20 vs Feb -5
- Service-sector index -10 in March vs +15 in Feb
- Manufacturers mood down ahead, service-sector flat
souring business mood could derail capital spending
All manufacturers across industries were pessimistic about business conditions,
Among service sector firms, no firms except those in real estate/construction and information/communications were optimistic.
Most of the companies expressed fears of the virus’ impact on their business, on top of already weak consumer spending due to an October sales tax hike and sluggish global demand aggravated by the U.S.-China trade war.
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Reuters poll of 501 large- and mid-sized nonfinancial companies, of which 242 firms responded
Bank of Japan’s tankan quarterly survey is due April 1