"The World Health Organization is governing the world these days, not the central banks: if you want to solve a pandemic with a rate cut, you have a problem". This is how Davide Serra of Algebris summarizes the response of the markets to the surprise rate cut practiced yesterday by the Fed: half a point less which, far from satisfying the growing demand for liquidity from markets under stress, have unleashed new waves of sell-offs in Wall Street which, after an initial rise, experienced another day of panic: Dow Jones -2,94&, S&P 500 -2,81%. Nasdaq -2,99% under pressure from sales on Microsoft (-4,8%) and Apple (-3,2%).
THE BIG TECHNOLOGIES UNDER FIRE
And now? Uncertainty dominated the Asian session and suggests a mixed start to European markets as well. Asia has also taken action. Hong Kong's monetary authority has cut rates, South Korea has allocated nearly $XNUMX billion off-budget to support the economy, the Philippines' finance minister has said stimulus measures are ready and the governor of the Central Bank of India has stated that appropriate measures will be taken if needed. In short, governments and financial institutions are mobilizing.
The lists hold their positions thanks to the continuous injections of liquidity. Little moved by China, which is trying with difficulty to get back on its feet (Foxconn, the iPhone factory, is back in business), the Hang Seng of Hong Kong is tied.
Sydney fell (-1,9%), following the rate cut by the central bank of Australia.
Tokyo's Nikkei gains 0,3%, while the dollar-yen cross rebounds from the October lows reached yesterday. Seoul's Kospi is up 2%, Kuala Lampur's JSX 1,5%. The Indian Stock Exchange opened slightly lower.
Big movements of course also on the front of the money and currency markets.
T-BOND AT HISTORIC LOW, DOLLAR IN RETIREMENT
The 1-year T-bond fell below the 0,9861% threshold and traded this morning at XNUMX%, at levels never seen in a century and a half, indicating that more is expected: another cut, maybe even two between now and the end of the year.
The demand for liquidity did not subside, as demonstrated by the strong demand for overnight and 14-day repo transactions.
Down the dollar as Donald Trump wants. The US currency slipped to a five-month low against the yen, the euro is sailing at an eight-month high: last night it reached a year-to-date high of 1,121.
GOLD STILL UP, BIG OIL MANEUVERS
The rush of gold continues, up 0,2% to 1.644 dollars.
Brent oil is stable at around 52,5 dollars a barrel. Tomorrow in Vienna the OPEC + delegates will seek an agreement on production levels. Cartel advisers have recommended a cut of at least 600.000 barrels a day, with the possibility of reaching a million.
PRIMARIES: JOE BIDEN ADVANCES, BLOOMBERG OUT OF PLAY
To report the outcome of “Super Tuesday”, the marathon of the democratic primaries which essentially decreed the end of Michael Bloomberg's electoral adventure. Joe Biden is making a very strong comeback and seems able to overtake Bernie Sanders, who however won in California. Barack Obama's former deputy conquers Arkansas, Oklahoma, Virginia, North Carolina, Tennessee, Alabama and Massachusetts.
Wall Street futures rallied after the release of the first polling data.
JOHN ELKANN GETTING READY TO GO SHOPPING
In this depressed climate, it is a pleasure to underline that the business world does not stand still. This is the case of Exor: after a month-long negotiation, the group leader (+1,15%) ceded control of the Partner Re reinsurance company for 9 billion dollars. To buy is the French Covea, which in this way strengthens its presence in the sector (23 billion premiums). The safe of the Agnelli house thus increases its firepower in view of probable acquisitions favored by the weakness of the markets.
EUROPE IS SAVED FROM THE WALL STREET DECLINE
European markets shut down before Wall Street went down. The surprise cut in US rates was thus received positively in the Old Continent. Positive but not too much Piazza Affari, the expression of a fragile economy, impoverished by the landslide of tourism and exports (Vinitaly also collapsed), which accentuates the weaknesses of public finance.
MILAN BRAKING BEFORE CLOSING
The Milan Stock Exchange trimmed the morning's gains, closing up 0,43% at 21.748 points.
In the rest of Europe, Frankfurt +1,01%; Paris +1,12%; Madrid +0,77%; London +0,98%; Zurich +1,62%.
The coronavirus outbreak is expected to have a significant impact on Italy's already ailing economy, with a recession in industrial activity expected to intensify in the first half of the year and a contraction in services. This was written by Loredana Federico, chief economist for Italy of Unicredit.
BTP YIELD FALLS BELOW 1%
The drop in interest rates favored the decline in bond market yields. The 1-year BTP fell below 0,98%, down to XNUMX%.
The decline in the thirty-year bond was particularly strong, slipping below the 2% threshold.
The Italy-Germany yield differential on the ten-year stretch fell to 161 basis points from a maximum of 174.
THE ECB TOWARDS A 10-POINT CUT, MORE IN SIGHT
At this point the spotlights are on the ECB directorate of 12 March: the market prices the probability of a 90 basis point cut by Frankfurt at 10%, up from around 75% on the eve.
Three sources told Reuters the ECB is working on a series of measures to provide liquidity to companies affected by the outbreak, including a Tltro aimed at small and medium-sized businesses.
THE MARKET REJECTS THE BPM PLAN
Swing day for the banks. The sector index moved from parity to +2% after the Fed's rate decision and sank into negative ground in less than 30 minutes to close at the day's lows down more than 2%.
Negative protagonist Banco Bpm (-8,2%) after the industrial plan which does not impress the market, also because it does not contemplate M&A hypotheses. Giuseppe Castagna, however, does not rule out agreements: “We have a good future on a stand alone basis. If then there is a consolidation of medium-sized banks, we will see how to move and how the market will move”. The Bank sees the plan holding up even in the hypothesis of a negative macroeconomic scenario in 2020, about which there are "many uncertainties", Castagna explained.
The other medium-sized institutions are back in decline, which in a normal situation would be the first candidates to be protagonists of the new phase of consolidation of the sector. Bper Banca -2,3%, Pop Sondrio -3,8%, Credito Valtellinese -7%. Intesa Sanpaolo also down (-0,8%). Heavy Unicredit (-4,2%).
LEAP FORWARD OF DIASORIN, RUNS STM
Among the positive notes, the leap forward by Diasorin (+2,93%) stands out following Thermo Fisher's offer on 100% of Qiagen at 39 euros (+23%). Equita recalls that "Diadorin has a partnership with Qiagen itself".
Among the industrialists, Stm is advancing (+2,8%). Prysmian (+1,03%) and Buzzi (+2,42%) also performed well. In evidence Leonardo (+1,45%), on which Banca Imi confirmed the buy recommendation and the target price of 14 euros pending the 2019 accounts.
MEDIOBANCA BRAKES PIRELLI
In the automotive sector, FCA (+1,03%) and Ferrari (+1,52%) rose. Pirelli falls (-2,1%): Mediobanca Securities reaffirmed the neutral rating and the target price of 5,10 euros on the stock.
Piaggio +0,56%. Banca Imi confirmed the buy rating and a target price of 3,4 euros, positively evaluating the data on two-wheeler sales in Italy
Atlantia sells 1% after Moody's downgraded the company and the subsidiary Autostrade to Ba3 with negative prospects following the conversion of the Milleproroghe Decree into law.
Telecom Italia (-1,7%) does worse than the main index: the halt to the single network project by Enel weighs heavily.
BANCA IMI PROMOTES SNAM, MANY BUYS FOR SARAS
In evidence Snam (+2,45%), promoted by Banca Akros from neutral to accumulated, with the target price going from 4,8 to 4,9 euros, after the completion of the buyback plan.
Also noteworthy is Saras (+1,75% to 1,05 euros), in the wake of analysts' judgments after the 2019 accounts. Kepler Cheuvreux confirmed the buy recommendation and the target price of 1,56 euros on the stock; buy also for Equita Sim, with the target price revised from 1,65 to 1,5 euro, while for Mediobanca Securities the rating is neutral, with Tp dropping from 1,65 to 1,60 euro. It should be noted that the new target prices remain well above the current market prices.
