Better day for stocks

On what was a very positive day for equity markets, the main currency pairs were relatively stable although the dollar has weakened a little overnight to trade back above the $1.08 level against the euro and above the $1.18 level against the pound, with the latter a touch firmer against the single currency at around 0.915p. Stocks rallied strongly with European and US indices gaining around 9%, and they should advance further today after Congress reached agreement on an almost $2 trillion support package for the US economy (equivalent to almost 10% of GDP)

While the fiscal and monetary response by governments and central banks to Covid-19 should help to mitigate the economic downturn, it can prevent it, and data published yesterday show the downturn is underway. The Purchasing Managers Indices (PMIs) of economic activity in the Euro and the UK both fell quite sharply in March – led by declines in the services sector – pointing to a contraction in GDP in the two economies that looks set to intensify over the next few months

In the US, the PMIs for March also point to declining GDP in the economy, with both the services and manufacturing measures of activity running below the 50 expansion-contraction level this month, particularly so in the case of services

According to the President of the Eurogroup of Euro Area finance ministers, there is “very broad support” for allowing member states to borrow from the zone’s rescue fund, the European Stability  Mechanism (ESM), which seems to be a step towards a co-ordinated response to Covid-19

Data published earlier this morning show the annual rate of CPI inflation in the UK dipped to 1.7% in February, while data due later today includes capital goods orders in the US