The FOMC's statement required a complete servicing and was very downbeat on the medium-term prospects for the economy. Beyond extraordinary policy support, greater optimism around economies reopening around the world and positive news around experimental treatment for the coronavirus are supporting risk sentiment.
Fed Chair Powell made it clear that he’s not in the 'V-shape' recovery camp. This sober assessment was taken positively; everyone knows the recovery, using the letters analogy, will probably resemble the consistency of a spoonful of alphabet soup.
The ECB meets following a surprise move by Fitch on Tuesday to downgrade Italy by one notch to BBB- with a stable outlook; S&P had kept Italy on at BBB late last week. Fitch explained its decision in the context of the rising trajectory of Italy's debt-to-GDP ratio. Nonetheless, EURUSD continues to trade in a very tight range.
So, China's two PMIs disagree on whether the manufacturing sector had turned to expansion/normalization as NBS data showed or back to contraction, as Caixin showed.
Without going into details, describing the difference is made up of two readings: larger enterprises vs. smaller businesses. But it's of little matter except for currency markets, as the deterioration in the Caixin was not as severe as the extreme contractions seen in other countries and, as such, the CNH rallies on the data despite what looks to be on the surface a glass half full report.
South Korea reported only four new coronavirus cases Thursday and zero locally-transmitted cases, the first time in 75 days with no new local cases. Protracted worries about political leadership in North Korea is a headwind for the KRW, but the drops in new Covid-19 cases is a definite positive for domestic economic outlook.
Traders were caught off guard by President Trump's dressing down of China while accusing them of conspiring to have him lose the 2020 election, and then even taking it up a level suggesting retaliation – presumably through trade – could be a course of action for China’s handling of the virus.
Bluster and pandering to the China hawks? Call it what you want, his comments are irresponsible – especially with the market on a positive tangent – but as we’ve seen so often before, his outburst will get walked back with olive branches to follow.
But global markets continued to rally on the back of a potential virus cure, and the global economy reopening should continue to support risk.
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In January the Fed needed to put the Taper Genie back in the bottle; now they need to convince the short end crew to back off repricing the Fed Funds strip