Stocks sell off

The euro and sterling both eased back against the dollar yesterday as stocks sold off quite a bit, weakening to around $1.12 and $1.24 respectively and leaving the euro-pound rate still trading at just over 90p. Both European and US equity markets closed around 3% lower on the day, while not surprisingly core bond yields edged down, to just under 0.70% in the case of US 10-year yields and to almost -0.45% for equivalent German yields

An increase in COVID-19 cases in a number of US states and in some other countries prompted the fall in equity markets, with the head of the National Institute of Allergy and Infectious Diseases in the US noting “a disturbing surge in infections” in some parts of the country

The IMF yesterday marked down its forecasts for the global economy this year, while admitting the outlook is still very certain, noting that the downturn in activity has been greater than it had expected and the recovery is likely to be more gradual, hence it now expects global GDP to fall by almost 5% this year (compared to its previous forecast for a decline of 3%) and to increase by 5.4% next year (versus 5.8% previously)

The Chief Economist of the ECB, Philip Lane says that while the central bank stands “ready to cut policy rates in the future as market conditions normalise and if warranted by the medium-term inflation outlook, the evidence tilts the balance towards asset purchases as the more efficient tool in current circumstances”

Data due today include jobless claims and a second estimate of first quarter GDP in the US