European stock markets plunged to more than three-year lows on Thursday as investors pushed the panic button again amid the deteriorating virus crisis. The World Health Organization declared the coronavirus outbreak a pandemic. Airlines suffered the most after the US President Donald Trump announced a ban on European travel for 30 days in response to the coronavirus outbreak. Travel and leisure stocks plummeted nearly 10% on the announcement. The new rules will go into effect on Friday night.
Against this backdrop, UK’s FTSE 100 loses 6.84 percent to 5,478, Italy’s FTSE MIB is down by 6.47 percent to 16,771 after the country closed all shops outside of supermarkets and pharmacies. France’s CAC 40 sheds 6.00 percent to 4,333, while German DAX 30 declines by 6.07 percent to 9,802. U.S. stock index futures tumble 5% after Trump failed to assuage fears about the spread of COVID-19 yesterday.
Meanwhile, during today’s meeting, the ECB left rates unchanged but announces a new LTRO, raising monthly bond purchases by 120 billion euros. The central bank said that additional LTROs will be conducted to provide immediate liquidity and added that considerably more favorable terms will be applied during the period from June 2020 to June 2021. As for the details, rates on new LTROs will be 25 bps below the average rate applied in Eurosystem’s main refinancing operations. Also, the regulator raised the amount that counterparties can borrow in LTROs to 50% of their stock of eligible loans. The monetary authorities highlighted that QE programs to run as long as necessary and end shortly before ECB ready to raise rates.
EURUSD briefly jumped above 1.13 in a knee-jerk reaction as the ECB left rates unchanged. However, the gains were erased quickly, and the pair even derailed the 1.12 figure for the first time in nearly a week. The recent decline was due to a general rise in USD demand. Also, the common currency was pressured by the reports that Germany is ready to abandon balanced budget rules to fight the virus. Interestingly, the dollar shrugged-off a weak economic report out of the US. The February PPI contracted 0.6% versus -0.1% expected. In the short term, EURUSD needs to bounce from the lows around 1.12 so that to target the 1.13 handle again.
Meanwhile, Brent crude continues to stay below the $33 handle despite a wide-spread risk aversion. Despite the relative resilience, the futures are down for the day and could suffer more aggressive losses should risky assets continue to bleed in the near term. On the upside, the key resistance lies around $37. As long as the prices stay below this level, sellers will continue to control the market in the near term, especially considering that OPEC has cancelled the March technical conference call meeting.
Nathan Lambert, Head of Global FX Analytical Department