Just ‘Trying To Go Up’.

Equities were wary on Thursday as $2 trillion in US fiscal stimulus is seen largely priced in after consecutive days of gains for global stocks.

The passage of the bill in the Senate (96-0) was a foregone conclusion after days of wrangling. The House will vote Friday. Trump said he’ll sign it as soon as it’s passed. “This is a classic way you write legislation in a democracy”, Mitch McConnell said, praising the effort, which came together at lightning speed, all jokes about this week’s dithering notwithstanding.

The unprecedented bill (embedded in full below) is poised to bring relief both to regular Americans and enfeebled corporates, but some say it’s still not enough.

Stocks have spent the last two sessions trying to price in the relief package, and the sessions prior to that trying to navigate the last vestiges of systematic deleveraging amid an alphabet soup of emergency liquidity and asset purchase programs from central banks, including the Fed.

“As long as you ignore some of the things that had to be put into it the $2 trillion US support package to get it all done, it IS a positive move”, SocGen’s Kit Juckes remarked.

The ECB started purchases under PEPP on Thursday, which you can thank for rallies in BTPs and Bonos, debt issued by the two countries with higher virus death tolls than China. Yields for Spain and Italy have come in since the rollout of the emergency pandemic purchase program on the 18th.

Spanish and Italian debt outperformed German bunds by as much as 7bps Thursday. The ECB will doubtlessly use PEPP to compress spreads, as Christine Lagarde now effectively makes up for her first errant remark as ECB chief by supporting Italian bonds amid the crisis.

The ECB tossed issuer limits out the window for PEPP, loosening all restrictions on the program. “To ensure… effectiveness… the consolidated holdings under Article 5 of Decision (EU) 2020/188 of the European Central Bank (ECB/2020/9) should not apply to PEPP holdings”, a legal document reads. “The Eurosystem will not tolerate any risks to the smooth transmission of its monetary policy in all jurisdictions of the euro area”.

The BoJ on Thursday bought 201.6 billion yen of ETFs. It was the third time (March 19 and March 23) Kuroda has purchased a record amount under the bank’s beefed up program aimed at ensuring market “stability”.

The dollar looked poised for a third day of declines, and, as ever, that’s welcome news as it’s evidence both that the global USD shortage/funding squeeze is abating (at least to the extent any lingering pressure isn’t showing up as much in spot) and that the “sell it all and go to USD cash” trade may be easing.

“The Fed (competing with the ECB for the Best Central Bank Response Oscar) is winning the battle to get enough dollars into the global financial engine to keep it turning over”, SocGen’s Juckes went on to say. “Demand for dollars through the Fed/BOJ swap line remains higher than in Europe, but the USD-JPY basis has now narrowed”.

“Markets are all over the place at the moment – and currently trying to go up”, Rabobank’s Michael Every said Thursday. “It’s easy to see why – we finally have a huge fiscal package ready for passage in the US and, surprisingly, some of it is even useful”.

Full stimulus bill


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