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Europe midday: Stocks slip despite bond rally as ECB loosens shackles on debt purchases

By Alexander Bueso

Date: Thursday 26 Mar 2020

Europe midday: Stocks slip despite bond rally as ECB loosens shackles on debt purchases

(Sharecast News) - Stocks across the Continent are slightly lower as investors gird themselves for data due out later in the day that is expected to show a historic jump in US weekly jobless claims, although the number of new Covid-19 infections in Italy continued to fall.
"We're still very much living through a period of extreme volatility but it feels like we're heading in the right direction, by which I mean cooler heads prevailing, rather than just simple market direction," said Craig Erlam, senior market analyst at Oanda.

Indeed, economic authorities around the world were moving to boost their economic relief measures.

Against that backdrop, as of 1015 GMT the German Dax was falling 2.09% to 9,688.31, alongside a 1.76% drop on the Cac-40 to 4,352.53, while Milan's FTSE Mibtel was 1.42% lower to 17,000.19.

Euro/dollar meanwhile was up by 0.81% at 1.0971.

Overnight, the US Senate approved a roughly $2trn economic relief bill that included funds to backstop up to $4.5trn in lending and debt purchases by the Federal Reserve, the country's central bank.

According to one analyst cited by Bloomberg, governments around the world had thus far pledged 2.7% worth of global GDP to fight the coronavirus pandemic, versus the 1.7% deployed in the Great Financial Crisis.

Addressing worries among some traders in the run up to the latest actions from Congress, in remarks to NBC's Today programme on Thursday morning, Fed President Jerome Powell said that "we are not going to run of ammunition".

Just a few hours before, the European Central Bank said its new €750bn should not be limited to purchasing a maximum of a third of any one country's sovereign debt and that shorter maturities will also be included.

Erlam was nonetheless cautious when it came to calling a bottom for shares given the uncertainty around when the peak in virus cases would be reached and the hit to economic activity over the short, medium and long-term that would result.

In response to the news out of the ECB the yield on two-year Italian government debt were falling by 12 basis points to 0.33%, while that on 10-year Italian debt was down by 45 basis points to 1.91%.

There was also some 'market chatter' to be heard earlier that the ECB might activate its Outright Monetary Transactions programme, which would allow it to buy government bonds directly from the secondary market.

However, reports citing ECB sources indicated that was not the case and that the current asset purchase programme was deemed to be more effective.

To take note of, G-20 leaders were scheduled to hold an extraordinary summit via teleconference later in the day.

New Covid-19 infections in Italy continue to retreat

The day's regularly scheduled economic releases were again weak, although there was some good news to be had on the coronavirus front in Italy which reported a fourth consecutive fall in the number of new infections, from 3,612 on Tuesday to 3,491 on Wednesday.

Consultancy GfK's German consumer confidence index for April printed at 2.7, versus a reading of 8.3 for March (consensus: 7.1) - plumbing its lowest reading May 2009 in the process.

That came alongside a slump in INSEE's French business confidence index for March to 98.0, versus a reading of 101.0 in February.

M3 money supply growth in the Eurozone on the other hand accelerated in February to reach a 5.5% year-over-year pace, versus 5.2% in January (consensus: 5.2%).

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