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G10 Macro Rates Market Analysis – Weekly Review – 27th April 2020

Monday, April 27, 2020

With the Pacific G10 Macro Rates Team 

Global Macro Overview
Last week equities and US 10y Treasuries finished the week flat, with volatility metrics going further down as the VIX slid to 36. The main event of last week happened outside of interest rates and foreign exchange markets as front WTI futures contracts traded negative for the first time touching -$40. Part of the move was a technical one, as the rest of the curve failed to exhibit similar volatility, but oversupply in the oil market remained a concern with June WTI contract down almost 40% on the week.

Outside of commodity markets, government bond issuance has finally started moving market sentiment. Italian and Spanish bond issuance increased volatility in the European peripheral markets, as 30y Italian BTP sold off over 30bps on Tuesday losing 5% of its value.

Thursday’s conference call between finance ministers of EU member states as expected did not produce any results. There are still significant disagreements on the joint debt issuance and funding of the recovery program. However, as Italian PM Conte softened his tone with regards to using ESM money and northern countries expressing willingness to share the costs of recovery fund, prospects of a deal remain high. Italian markets got some relief as well as the rating agency S&P Global kept Italy's credit rating unchanged at BBB-.

North America
US: Initial jobless claims increased by 4.4 million last week, with continuing claims climbing to 16 million. The durable goods orders report for March came out much better than expected. Although headline numbers dropped -14.4% vs. -12% expected, the Ex-Transportation number was only -0.2% down vs. the expectation for a -6.5% decrease.

A range of indicators of Consumer and Business confidence collapsed to historical lows across the European economies, as lockdown measures brought almost all activity to a standstill.

Trade data for March came in mixed, with Exports dropping -11.7% (-9.4% exp.) YoY but Imports declining only -5% YoY (-8.7% exp.). PMI surveys for April followed other developed markets dropping to 22.8 for Services and to 27.8 Composite.

Inflation and labour market data that came out last week was old (for March) and is not relevant in the current environment. PMI numbers for April collapsed to record lows as was expected with Manufacturing at 32.9, Services at 12.3, and Composite at 12.9.

Australia: Surprisingly resilient Manufacturing PMI printed at 45.6 for April, however, Services did collapse to 19.6.

For further information on the Pacific G10 Macro Rates team, their experience and strategy please see below                                 

Read the Strategy Information Sheet

IMPORTANT INFORMATION: Issued and approved by Pacific Capital Partners Limited, a limited company registered in England and Wales, authorised and regulated by the Financial Conduct Authority . The information contained herein is not approved for use by the public and is only intended for recipients who would be generally classified as investment professionals. Information or opinions contained in this article do not constitute an offer to sell or a solicitation, or offer to buy, any securities or financial instruments or investment advice or any advice or recommendation.

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