Fed Speeds Up QE Programme

Market movers today

Market focus continues to be on COVID-19, policy responses and economic impact.

Today we get March PMI data for the US and the euro area, which are likely to show a significant decline. Not least the service sector is set to show a very sharp drop.

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The G7 finance ministers and central bankers will have a call to discuss responses and economic impact.

The Eurogroup finance ministers will talk on a call at 18.30 CET to discuss how to use the bailout fund European Stability Mechanism (ESM) to support countries. Possible common issuance of so-called corona bonds is to be on the agenda as well.

Hungary will announce a rate decision at 17.00 CET.

Selected market news

On the economic policy front, the big news came out of the US yesterday as the Fed threw everything it has at the market. It changed its QE programme from a fixed size to an open-ended programme and pledged to buy as much as needed to ensure transmission of monetary policy. The purchases are set to take place at an unprecedented pace as the Fed is looking to buy USD625bn already this week. At the same time, the Fed announced three new facilities. Two of them are aiming at big corporations by buying both new bond and loan issuance (the Primary Market Corporate Credit Facility (PMCCF)) and buying outstanding corporate bonds (the Secondary Market Corporate Credit Facility (SMCCF)). The third facility is the Term Asset-Backed Securities Loan Facility (TALF), which will facilitate asset-backed securities like auto loans, student loans, equipment loans etc. In total this should provide USD300bn of liquidity. On the fiscal policy front, the Senate blocked a further advance of the virus stimulus package.

The lockdown measures in Europe increased yesterday. The UK announced a three week lockdown banning unnecessary movement of people and closing of hotels, shops selling non-essential items, playgrounds etc. In Denmark, current lockdown measures were extended until after Easter. In China, lockdown measures are planned to be lifted on 8 April.

Japan’s preliminary PMI indices for March showed a significant contraction in the economy. The manufacturing index dropped to 44.8 from 47.8 – the lowest since April 2009. The service PMI fell to 32.7, the lowest ever. Finally, the composite PMI dropped to 35.8 – the lowest since April 2011 after Japan was hit by a large earthquake and tsunami.