The Investment Bank Outlook 30-03-2020

<p><span>In our Investment Bank Outlook each week, we bring you a selection of perspectives from leading investment banks to outline the key issues and directional views for the week ahead. These excerpts, taken from research notes, will cover issues such as key market themes, economic releases, as well as any major trends and levels to watch. Please note, this material, which does not reflect the opinions of Tickmill, is provided for educational purposes only and should not be taken as an investment recommendation.</span></p>
<h2>RBC Capital Markets</h2>
<p><strong>Week ahead:</strong> US employment data for March (Fri) top the agenda this week, though will be difficult to interpret. The range of expectations goes from ‐350K to +150K. Our economists are closer to the bottom end of that range (‐175K). Daily employment data suggests that the real impact of COVID‐19 began to take effect on jobs during the middle of the survey week in March. The seasonal hurdle is about 450k, so we assume the hit to adjusted payrolls will be about half that. While March will look bad, April will be even worse. We expect significant layoffs started in late March and will trickle into early April.</p>
<p>As usual, we suggest ignoring the ADP data (Wednesday), which have recently had no useful relationship to payrolls. Both ISM surveys are expected to see sharp headline declines in March. Outside the US, the calendar is light, with Japan’s Tankan survey and Eurozone inflation the main highlights. Month‐end: The 11% fall in US equities month‐to‐date would generally be associated with significant USD buying as equity managers seek to reduce over-hedged positions. Unusual liquidity conditions may, however, have resulted in some of that flow being brought forward and the coincidence with quarter‐end fiscal year‐end in the UK and Japan further clouds the picture.</p>
<p><strong>EUR:</strong> Today’s German and Spanish March CPI releases may shift expectations for the Eurozone release tomorrow. All will be depressed by the COVID‐19‐related drop in petrol prices in the month, though the ECB’s focus in on the impact of the virus on economic activity.</p>
<p><strong>JPY:</strong> Wednesday’s Q1 Tankan survey will be the first significant activity indicator to reflect the impact of COVID‐19. The sample period is skewed toward the back end of the quarter, so the headline indices should be weak.</p>
<p><strong>ZAR:</strong> After Friday’s close, Moody’s downgraded South Africa to junk (Ba1 with a negative outlook) and highlighted “the continuing deterioration in fiscal strength and structurally very weak growth” as the key factors in the decision. South Africa’s local‐currency government bonds will now be excluded from the FTSE WGBI.</p>
<p><strong>CAD:</strong> We see the January monthly GDP report (Tues) showing a 0.2% m/m gain, with some upside risk. Of course, this is very rear‐view mirror and near‐term indicators suggest March could see a monthly decline on the order of 1.5% due to COVID‐19 disruptions. USD/CAD features support at 1.3912, with resistance at 1.4051</p>
<h2>Citi</h2>
<ul>
<li><strong>President Trump</strong> announced that the administration now expects the peak of deaths in the U.S. coronavirus outbreak to be reached in about two weeks, and that he would extend current social distancing guidelines for Americans until April 30 (he had previously aimed to have the US back to work around April 12). “We can expect that by June 1 we will be well on our way to recovery he said. Treasury Secretary Mnuchin also commented that the latest USD 2.2tn fiscal package will provide economic relief for around 10 weeks.</li>
<li><strong>The CDC’s</strong> Dr. Fauci offered a pessimistic outlined, commenting that 100-200k Americans could die from the COVID-19 outbreak with millions of infections, according to current but rapidly evolving projections. Deborah Birx, coordinator of the White House task force, also offered a grim assessment: “No state, no metro area, will be spared. New York (city and state) is the epicentre of the outbreak but new centres are springing up, such as Louisiana or Michigan. University of Louisiana Professor Wagner suggested Louisiana’s recent trajectory for infections was ahead of Italy and Spain at the same time. As for Congress, House Speaker Pelosi continued to discuss the next Phase 4 stimulus package saying that every single day, the need grows [for more stimulus]. However, Republican House Minority Leader McCarthy now says that he is “not sure we need a fourth economic package.”</li>
<li><strong>GBP:</strong>  The country’s deputy chief medical officer Harries confirmed that UK measures will be reviewed around Easter (April 12) as planned but if seen insufficient, the government could do more. She thinks it will take two or three months to see whether we’ve really squashed it and that normalcy may be 6 months away.</li>
<li><strong>JPY </strong>could be moving to a state of national emergency according to Cabinet Secretary Suga who commented that Japan is on the verge of an emergency declaration.</li>
<li><strong>EM</strong> is seeing further lockdowns and an intensification in second wave infections.</li>
</ul>
<p>Policy chatter continues.</p>
<ul>
<li>Away from the US fiscal policy headlines outlined above, we saw more chatter and developments in Asia trading. We pick out the most important G10 and EM headlines below.</li>
<li><strong>JPY </strong>PM Abe announced that he plans to submit an extra budget in ten days to fund the biggest ever stimulus package which will include interest free loans, cash handouts for citizens and measures to protect regional employment. He also suggested that fiscal, monetary and tax policy would be deployed in unison and thus watch for BoJ headlines in coming days. Local news source TV Asahi headlines put the cash handout figure at JPY 100k.</li>
<li><strong>EUR:</strong> There were a few new soundbites regarding EU Commission efforts.  President Ursula von der Leyen says the group is not excluding any options. We are currently working on a full flexi-bilisation of existing funds — such as the structural funds, she said, adding that the changes could include a stimulus package that will ensure that cohesion within the Union is maintained through solidarity and responsibility. There was little in terms of actual details amid ongoing conflict between periphery country calls for the issuance of joint debt and opposition to this from Germany and the Netherlands.</li>
<li><strong>AUD:</strong> RBA announced plans to buy AUD 3bn across April 2026-April 2029 government bonds, the longest-dated buying operation for ACGBs so far. 10y bond yield slid as much as 17bps in reaction. We remain on watch for further fiscal headlines.</li>
</ul>
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