Macro Overnight Report Macro Overnight Report Macro Overnight Report

Macro Overnight Report

Christopher Dembik

Head of Macroeconomic Research

Summary:  Tensions remain elevated in financial markets, with the Australian stock market falling into bear market this month and high yield spreads soaring in risk-zone. Latest data confirm that the COVID-19 starts to have a deep negative impact on consumer confidence, which will increase the demand shock in many countries. A few minutes ago, in a surprising move, the BoE cut rates by 50bps to 0.25% and announced a credit facility for SMEs to respond to coronavirus uncertainty.

Emergency rate cut by the Bank of England: Less than ten minutes ago, the BoE released a statement announcing a reduction of the bank rate by 50bps to 0.25% due to coronavirus uncertainty. A new Term Funding scheme targeting SMEs and financed by the issuance of central bank reserves is also implemented. It could provide in excess of £100 billion in term funding. There is little doubt this is coordinated with fiscal easing in March budget today, which is expected to be big. The GBP is initially weaker following the emergency rate cut.

Tightening conditions in the United States are similar to that of 2011: Despite the recent Fed monetary policy tweak, financial conditions continue to deteriorate in the United States. The Federal Reserve is forced by markets into a dovish corner. Fed funds futures are pricing in 75bps in Fed Funds cuts by 18 March. Other options are on the table if necessary, including dropping rates to 0%, doing more QE and starting to buy other assets than USTs, such as US corporates or even US equity indexes. Due to the negative side-effects of negative rates, we don’t think that the Fed will resort to that option in the first place.

Tensions in the credit markets remain: Lately, we have repeatedly stated that investors must watch closely the latest developments in the credit markets. These are the weakest link in financial markets and the most obvious channel transmission through which the crisis could spread. High Yield spreads continue to increase, which will likely result in a wave of downgrades from BBB- to junk in the coming weeks. Until those spreads stabilize, financial markets are going to struggle. If investors need to monitor only one thing these days, it is bright clear that it is the credit markets.

More bad data this morning: There was not much data released in the Asian session. The most significant was the Australia Westpac consumer confidence index. It was a very bad print. The index hits a five-year low at 91.9 in March due to the COVID-19 outbreak and the associated rout in financial markets. This is the second lowest level since the GFC when the index bottomed out at 79. It tends to confirm that the coronavirus outbreak is primarily a demand shock and we should get ready for more negative data in coming months concerning consumption and household confidence in the most exposed countries.

Easing of capital requirements and regulation are coming in Europe: Over the past hours, many measures have been decided at national level in Europe to help households and SMEs, including suspension of payments on mortgages in Italy and similar discussions are currently going on in Germany. In order not to destabilize further the banking sector, which might be hit this week by another ECB interest rates cut, bank capital relief and temporary loosen regulation may be implemented anytime soon by the EU banking watchdog.

The airlines industry is going through its biggest decline on record: Many companies are on the verge of bankruptcy. The president of United Airlines indicated yesterday evening that the company expects revenues to fall as much as 70% in the next two months. Korean Air, which is one of the top-ranked international cargo airlines, is even more pessimistic. It has cut almost -80% of its international capacity due to the crisis compared with -18% during the 1997 financial crisis. The top management has warned the company may not survive if the COVID-19 outbreak is not contained quickly. A “Marshall Plan” for the airlines industry may come soon.


Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.