Category: zerohedge

By Michael Msika, market commentator and analyst for Bloomberg Markets

Just when Europe’s equity benchmark was about to hit a record high, clouds are forming over the stock market again, with a wave of U.S. block trades rattling investors worldwide. But at least one alluring factor remains intact: the region’s stocks are still cheap, especially in a world of rising bond yields.

Traders were bracing for a hectic morning after Credit Suisse Group AG joined Nomura in warning about potential significant losses related to an unnamed U.S. hedge fund client defaulting on margin calls. Meanwhile, Morgan Stanley was shopping a large block of ViacomCBS Inc. shares, according to people familiar with the matter, a sign that the unwinding may not be over.

Shares in Nomura tumbled 16%, most on record, while Credit Suisse shares were indicated down 7% ahead of the open. Still, Euro Stoxx 50 futures were edging higher while U.S. index futures slipped.

Despite the Stoxx 600’s strong outperformance since the end of October, the benchmark has been getting cheaper. The gauge’s forward P/E has dropped since a record high last June, as a surge in earnings forecasts has outpaced the stock gains. That’s kept valuations lower than global peers.

Europe’s stock rally has wobbled in recent weeks, with the Stoxx 600 struggling to recapture a record high that’s tantalizingly close as rising virus cases and vaccine hurdles cast doubts about reopenings. Still, a sharp improvement in vaccine supply in the next two quarters should be enough to inoculate the bloc’s population, which should accelerate economic momentum, according to Bank of America.

“Equity returns should slow, but Europe can outperform as relative macro data improves,” say Morgan Stanley strategists including Graham Secker, who see the continent’s relative economic momentum improving in the next three to six months. Europe is likely to be the only region with stronger GDP growth in 2022 than 2021, and should remain a relative beneficiary of higher bond yields, they say.

While the “easy money has been made” on European stocks after a 33% rally over the past year, there’s still double-digit upside left to banks, insurance, energy, Italian and U.K. equities, says Secker, part of a chorus of bullish call on value.

Such shares are not only lagging cyclicals, signaling more room for a rally, but are positively correlated to bond yields and inflation expectations. European stocks, with a heavy exposure to the cheap stocks, in fact trade at similar P/E levels to U.S. value shares.

“This alignment of positive top down macro conditions and bottom up fundamental views is a powerful narrative for value and for further upside from here, despite the already large rotation we have already seen,” says Bernstein strategist Sarah McCarthy, who is overweight on value shares. While European profit forecasts have risen faster than the U.S. in the past two quarters, McCarthy sees more upgrades in store for sectors such as banks, energy and autos.

If valuation is the key attraction, U.K. equities too are due a catch up. Despite the lifting of the Brexit overhang and faster vaccine rollouts, they remain one of the cheapest developed markets. The MSCI U.K. gauge hit an all-time low against global peers last month and trades near a 30% discount, the most in at least 15 years.

Not everyone is optimistic though, and the row over vaccines and fresh virus-led restrictions this month show where things could go wrong with the long-awaited economic rebound. Looking beyond the immediate recovery, the prospect of higher taxes also dims the appeal of the value trade, according to Lewis Grant, senior global equities portfolio manager at Federated Hermes.

“The U.S. economic stimulus promised a lot for value, yet the optimism gave way to concerns about increased U.S. corporate tax rates that typically have a greater impact on value than growth stocks,” says Grant. The U.K. government was the first major country to announce a corporate tax hike from 2023, while the U.S. is also weighing higher levies.

 

Tell us if you’ve heard this one before – Wall Street prime brokers allowed hedge funds to dance while the music was playing with ever greater leverage in off-exchange and unregulated derivatives… until the first sign of trouble and the whole house of cards comes crashing down in a potentially systemic manner.

The bloodbath in various media stocks on Friday has brought light back to one of the dark corners of the equity trading business – so-called contracts-for-differences (CFDs).

As Bloomberg reports, much of the leverage used by Hwang’s Archegos Capital was provided by banks including Nomura and Credit Suisse – who have most recently admitted huge losses – as CFDs, which are made off exchanges, allow managers like Hwang to amass stakes in publicly traded companies without having to declare their holdings (far in excess of the 5% stakes that require regulatory reporting).

Crucially, as Bloomberg notes, this means Archegos may never actually have owned most of the underlying securities – if any at all – as the CFD is akin to a privately-arranged (i.e. off exchange and bespoke) futures contract where the differences in the settlement between the open and closing trade prices are cash-settled (there is no delivery of physical goods or securities with CFDs).

The leverage Hwang was given made him look like a trading genius as the various positions he took were pumped and pumped (and helped by gamma-squeezers) but now look like a reckless gambling fool as the bets collapsed.

CFDs are among bespoke derivatives that investors trade privately between themselves, or over-the-counter, instead of through public exchanges. This is exactly the kind of hidden risk that amplified the losses during the 2008 financial crisis.

As Bloomberg notes, regulators have begun clamping down on CFDs in recent years because they’re concerned the derivatives are too complex and too risky for retail investors, with the European Securities and Markets Authority in 2018 restricting the distribution to individuals and capping leverage. In the U.S., CFDs are largely banned for amateur traders… but not for hedge fund managers who are “sophisticated”?

But, banks still favor them because they can make a large profit without needing to set aside as much capital versus trading actual securities (driven to this opaque market as an unintended consequence of heavy regulation following the 2008 financial crisis).

In the case of Archegos, there is very little transparency about Hwang’s trades, but market participants suggest his assets had grown to anywhere from $5 billion to $10 billion in recent years with total exposure topping $50 billion. And bear in mind, this is not ‘leverage’ in the old-fashioned sense (i.e. banks allow you buy X-times the amount of stocks relative to your capital); this is purely synthetic – the firm has no actual underlying asset to fall back on, but is linearly exposed to losses (and gains) on a margined basis.

And as we noted at the beginning, this has the potential to be much more systemic as the losses created by Archegos’ margin calls trigger more margin calls and more potential losses for the prime brokers. Think we are exaggerating, then explain why the costs of counterparty risk hedging for Credit Suisse for example, has exploded in the last few days…

Source: Bloomberg

We look forward to the Congressional hearings on this.

Oregon Public Broadcasting (OPB) reported Sunday a small group of Proud Boys and Trump supporters clashed with more than 100 anti-fascist counterprotesters at Oregon State Capitol. The far-right group organized the protest several days leading up to Sunday, saying they would be at the state capitol building to support “freedom.” 

Sunday was the first time in months that the two opposing sides have clashed in Oregon. 

Salem Police Department posted a series of tweets warning about a “public safety” risk of “150-200” anti-fascist counterprotesters at the capitol who were “heavily armed.” The anti-fascist were considered “counterprotesters.” 

Police told anti-fascist protesters they were participating in an illegal demonstration. “Failure to do so may result in arrest,” police said over loudspeakers. 

Footage of Antifa flags was present at the rally. 

#Antifa brought their flag, weapons and riot gear to their violent protest gathering at the Oregon state Capitol in Salem. #AntifaRiots pic.twitter.com/AYsZqCCrel

— Andy Ngô (@MrAndyNgo) March 28, 2021

A crowd-controlling police unit was dispatched to the capitol complex to mediate anti-fascist counterprotesters. 

Riot vans are now circling the group which has moved off the capitol grounds #SalemOregon #PortlandProtests #Antifa #ProudBoys #BlackLivesMatter pic.twitter.com/6lZw99KnaH

— it_ain’t_pretty_ (@it_aint_pretty_) March 28, 2021

It looks like state troopers and Marion county sheriffs #SalemOregon #PortlandProtests #Antifa #ProudBoys #BlackLivesMatter pic.twitter.com/iSlSdT2QaH

— it_ain’t_pretty_ (@it_aint_pretty_) March 28, 2021

Things quickly got out of hand when Proud Boys and Trump supporters showed up in their trucks. Counterprotesters smashed their vehicle windows with blunt objects. 

A window is broken during a protest at the Oregon State Capitol today pic.twitter.com/Y34mwLj9lU

— Zane Sparling (@PDXzane) March 28, 2021

Alleged shots of Proud Boys at the capitol building.

Counterprotesters pummeled Trump supporters’ trucks with objects. 

#Antifa at the Oregon state Capitol in Oregon steal a flag off a truck, then pelt it with rocks. #AntifaRiots pic.twitter.com/F5aQqWnGwj

— Andy Ngô (@MrAndyNgo) March 28, 2021

Antifa members destroyed another Trump supporter’s truck. 

#Antifa impaled the red truck with a large tree branch during their mob attack on the vehicle outside the Oregon state capitol. There was a female passenger in the vehicle at the time who was nearly killed. #AntifaRiots pic.twitter.com/WZARAZoT5A

— Andy Ngô (@MrAndyNgo) March 29, 2021

One Trump supporter pulled a gun on Antifa following damage to his truck. 

Gun pic.twitter.com/V8epUpz5tU

— Melissa “Claudio” Lewis (@Claudio_Report) March 28, 2021

“Antifa gathered in Salem, Ore. in a pre-planned riot. They wore ballistic vests & carried guns, bats, shields & gasmasks. They assaulted drivers on the road by throwing paint & rocks,” tweeted Andy Ngô.

Eventually, Ngô said police and troopers pushed Antifa rioters away from the streets where they were “assaulting drivers.”

Salem Police & Oregon State troopers move #antifa rioters away from the street they were occupying and assaulting drivers at. #AntifaRiots pic.twitter.com/Jg0U6d6EAC

— Andy Ngô (@MrAndyNgo) March 28, 2021

OPB said several arrests were made in the anti-fascist group Sunday.

As for the “peace and unity,” which President Biden promised in January during his inauguration speech appears a distant dream at the moment. America is still traveling down a dangerous path towards continued clashes by both extreme political fringes. 

One day after a historic plunge in several media and Chinese tech stocks which was started by the following BWIC from Goldman…

… which we now know was the result of Archegos capital’s terminal margin call, which may or may not be continuing today.

So while we wait to see if we get any new BWICs from Goldman, Morgan Stanley or other Prime Brokers hit, there has been a reversal in the impacted stocks, with ViacomCBS, Discovery and a group of Chinese ADRs now trading mostly higher premarket, reversing earlier declines.

A ViacomCBS block trade that launched on Sunday has priced at $47 per share, Bloomberg reported, after shares were said to be offered at $46-$47. As a result, ViacomCBS Class B shares were back down to $47.1, after rising up 1.5% to $48.94 premarket, They plunged 27% on Friday.

Discovery shares, which also tumbled 27% Friday, rose 4.1% premarket before fading much of the gains.

Shares in most of the other stocks involved in the block trades also rose: Tencent Music Entertainment rises 5.5%, reversing an earlier drop; Baidu rises 1.5%, also reversing an earlier drop, while Vipshop +0.1%, iQiyi +0.5%, Farfetch -1.9% and GSX Techedu -1.3%.

Authored by Bill Blain via MorningPorridge.com,

“The supreme art of war is to subdue the enemy without fighting.”

You could not make this up; an unimaginably complex WW3 Techno-thriller unfolding as markets stumble and global supply chains hover on the edge of anarchy. On the other hand, maybe that’s just the way it was planned.

I am not one for conspiracy theories. But… this morning… If I was a writer of trashy global-techno-World War 3 pulp fiction, and proposed the following scenario where the global economy lurches into an unprecedented period of instability – nobody would believe me:

1)    Global Supply Chains, weakened and struggling after a year of global pandemic, plus a growing shortage of microchips holding back multiple industrial sectors, are plunged into new crisis by a puff of wind causing a box-ship to skite sideways and block the Suez Canal, trapping East-West Trade.

2)    Unstable and over-priced Global Markets are spooked into a frenzy late on a quiet Friday night by the largest margin calls ever ($20 bln plus) as an Asian “family office” dumps billions of dollars of stock into the market. Collateral damage spreads, as other financial firms, (inevitably including Credit Suisse (Switzerland’s very own Deutsche Bank), and Nomura), announce material losses.

3)    As global central banks struggle to restore real growth, while trying to hold interest rates low and support commerce, and acutely conscious of how a market crash could crush global confidence – things suddenly get more difficult as confidence in equity valuations takes a massive knock.

4)    Geopolitical stability wobbles after China lashes back at US criticism in Alaska, and then surprises Europe with sanctions and push back on trade deal – when many has expected China to attempt to reach out to Europe – even as it reaches out to pariah states including Iran, Myanmar and Turkey.

5)    Rumours abound of imminent China action to seize Taiwan – and the potential impotence of US fleets from the Gulf to the Pacific are targeted by long range Chinese carrier-killer missiles – further destabilising markets.

6)    Cyber-attacks across western economies, first uncovered at Solar Wind, but possibly undiscovered elsewhere, raise questions as to how much the West’s digital and financial infrastructure has been compromised.

What happens next?

On the basis I am an optimist, and things are never as bad as we fear, I think it all settles. Who knows? But I suspect one thing is going to become very apparent. China has crossed the Rubicon and will now longer be a rule taker. The rules have changed. China has demands.

What’s different in the above scenario is that it doesn’t necessarily lead to a hot-war. The Beijing leadership see benefit in trade, engagement and the global economy to deliver its pact of prosperity to the Chinese population. They may conclude China’s done enough to achieve its’ strategic economic objectives; parity with the west, and economic primacy across Asia.  Whether the mood turns hot or cold rather depends on how the West responds to the apparent nullification of the USA’s military hegemony achieved by China’s new missile technologies.

These new missiles are a known unknown. The latest versions of the D-26 Carrier-Killer are apparently based on the Tibetan Plateau and can take out US Carriers from the Gult to New Zealand – making any defence of Taiwan look an extremely risky call. Sending the UK’s carrier strike group into the region later this year looks… challenging.

And suddenly you are wide awake and wondering just how crazy this suddenly got…..

*  *  *

On Sunday I spoke with one of my old racing yacht crew who is now doing extremely well in Global Shipping. I asked if there was anything we were not being told, or what the real story of the ship blocking the Suez was. He was cagey but told me.. “If you need Garden Furniture, buy it today.”

This morning it looks like the Suez has been uncorked – the boat has been shifted – but I was asking because I reckon slowing global trade by sending it the long way round Africa isn’t just about miles and time – it’s finding the ships capable and seaworthy for the longer trip, and bunkering them accordingly. It’s not just a matter of a longer voyage. Suddenly everyone wants Air Freighters.

The key-thing is what happened on the Suez demonstrates is just how easy it would be to block the bottlenecks of global trade. Everything from consumer tat to chips would be stressed.

After Archegos Capital, the family office of tiger-cub and convicted insider Bill Hwang was forced to sell more than $20 bln of stocks in a series of block trades on Friday, this morning – its looking likely to be a risk-off day. Block equity-trades stemming from the margin-calls on Archegos will have sent the market’s spidey senses a’tingle. Who is next?

There will be flows back into the relative safety and comfort of bonds – even if they do yield nothing. In bonds there is truth, and I suspect today will confirm it’s all about fear. Over the past 10-years artificially low rates have eroded the relationship – telling investors low rates are a reason to take risk. Its low rates that have supported today’s frankly insane stock market valuations. Risk is very real again.

While Gold might be on the agenda, I’m not so sure about Bitcoin. The Chinese have made it quite clear they will digitise the Yuan.

Today’s moves will likely also reflect a Q1 rebalancing of bonds vs equities holdings– which have been distorted by the relative yields on asset classes. But I suspect it will just be the start of a trend. Just how big has unregulated leverage in the shadow banking system of investment firms become? How could it unravel impact markets? Or maybe it will be illiquidity as the next duck tumbles and no one is prepared to buy?

Today won’t be much fun for anxious central bankers.

It’s not going to be much fun for the politicians either as they look realise just how vulnerable the West is to a new economic shock, even as we’re still being floored by the self-inflicted economic harm of the Pandemic.

Western Economies are dependent on long exterior global supply chains to fuel demand for more and more consumer goods. We’ve become comfortable to click and deliver being satisfied from China. Stuck in lockdown we’ve heard disembodied voices warning of economic catastrophe, but we’ve been cocooned from the economic reality, relying on governments assurances they can prop up the Covid ravaged economy with subsidy and furloughs. Destabilise our supply lines, and the threat is a run on everything – potentially making last year’s pandemic panic look tame.

Meanwhile, dissent is all the rage across the west, whether it’s the right-wing complaining about their civil liberties, smaller nations demanding independence, or gender and race issues coming to the fore and exposing the inequality and division of society. All of these divisions are fed on a rich oxygen-mix of social media, and targeted with fake news aiming to deepen division. Everyone has a cause, and everyone believes what they want to, but nobody listens. Western society has never been this unstable, polarised and disunited.

Chalk up another win to China.

China’s leaders are satisfied. Their position is secure. China’s economy is exposed to supply chains, but is based on interior lines (and pretty much brand new infrastructure) – better able to weather and internalise a global trade-storm. Its’ society is homogenous and willing to buy the greater prosperity/state control trade off. National pride hasn’t been compromised by the pernicious effects of Wokery.

The economy of the West is bought into the promises of technological change and addressing the environment. Markets are soaring on the back of expectations of increased technological adoption, with a few successes spurring thousands of highly speculative copycats – witness the insane boom in SPACs. But the reality is economies have become increasingly bureaucratic, stultified by regulation, and held back by political gridlock and polarisation. Infrastructure is old and tired. Key skills and capacities have been lost.

Let me present a tiny example – speciality steels. Without speciality steels for the fine work of tech, the economy will ultimately wither and die. We are now entirely beholden to external steel. The UK government put plans to restore mining the key element of steel in the UK on hold. Without metallurgical coal – you can’t make steel. Fact. The UK prefers its steel to be made in China with Australian met. coal so it can say it’s tough on cutting carbon. The facts are simple – make the steel here, less carbon miles and more high quality jobs.. Or…

But, the risks are not just in terms of physical supply chains. The digital economy is even more important and potentially even less protected. We’ve largely remained unaware of just how vulnerable we are. The cyber-attacks on SolarWinds last year may reveal the Trojan Horse is already in the city.

The degree of interconnectedness in the global economy is extraordinary. All the major financial institutions used SolarWinds’ Orion platform. The hackers got into SolarWinds and were able to install malicious code into software updates, accessing thousands of clients’ confidential information. We still have no idea how deep the hack goes. Increasingly companies release its not a matter of understanding their own vulnerability, but the vulnerability of all their suppliers, and hence, the whole digital supply chain.

So… what happens next?

Do the Chinese explode a couple of massive nuclear missiles in space to take down global positioning, communications and spy satellites with an EMP pulse, alongside a simultaneous cyber-attack to crash the Western Financial System, plunging us into limbo? How would Central Banks cope with the resultant market meltdown? What would happen if even a small part of the global payments system crashed?

Sometimes it easier to not over think it.. and just hope it was just coincidence… hope is never a strategy.

After initially dipping as much as -0.7% during the early Asian session on fears that the Archegos margin call crisis which has already cost billions in losses at Nomura and Credit Suisse’s prime brokerage units could spread, futures have stabilized and at last check the Emini was down -0.3% to 3,952 after its remarkable late Friday surge which pushed the S&P just shy of an all time high, while quarter-end is expected to be in focus this week, favoring buying of Treasuries although it is debatable how stocks will trade today.

At the same time, Nasdaq 100 futures erased losses of as much as 1.2% to trade little changed as of 7:30am in New York following revelations that Archegos Capital Management LLC – Bill Hwang’s family office – was behind a $20 billion spree of block trades on Friday, selling Chinese tech giants and U.S. media firms. And with a number of banks exposed to Archegos and losing billions, investors are on edge lookout for signs of contagion.

As noted earlier, Nomura and Credit Suisse warned of significant losses after Archegos defaulted, sending their stocks plunging by near record amounts.

Shares in Bank of America Corp, Citigroup Inc, JPMorgan Chase & Co, Goldman Sachs, Wells Fargo & Co and Morgan Stanley dropped between 0.8% and 3.3% in premarket trading.

As Bloomberg reported this morning, much of the leverage used by Hwang’s Archegos Capital Management was provided by banks including Nomura and Credit Suisse Group through swaps or so-called contracts-for-difference, according to people with direct knowledge of the deals. It means Archegos may never actually have owned most of the underlying securities – if any at all.

Many of the stocks that were hammered on Friday were volatile in early trading, they have since stabilized and ViacomCBS, Discovery and a group of Chinese ADRs were trading mostly higher premarket, reversing earlier declines for some of the names. A ViacomCBS block trade that launched on Sunday has priced at $47 per share, according to a person familiar with the matter, after shares were said to be offered at $46-$47. ViacomCBS Class B shares are up 1.5% to $48.94 premarket, while the less-heavily traded Class A shares are up 6.7%; Class B slumped 27% on Friday. Shares in Discovery Inc rose about 5% after tumbling 27% on Friday, while U.S.-listed shares of Tencent Music rose 4% after nearly halving in value last week. ViacomCBS, Baidu and VIPShop fell between 0.2% and 1.5%.

“This incident reminded markets of the dark side of leverage, likely leading some players to cut their risk exposure near record highs to avoid any serious losses if the selling snowballs,” said Marios Hadjikyriacos, investment analyst at online broker XM in Cyprus.

Wall Street’s main indexes surged over 1% in a late-session rally on Friday as investors looking to rebalance their portfolios at the end of the quarter, piled into economy-linked banks, energy, materials as well as technology names. The Dow and the S&P 500 are less than 1% from their record highs, while the tech-heavy Nasdaq is still about 7.1% from its February all-time high. Investors have been focusing on the strength of the recovery, aided by vaccines, and inflation risks.

The value-intensive Europe appears to have put the Archegos fiasco in the rearvier mirror shockwave as the Stoxx 600 rose for a second day as gains for defensive sectors including food and beverages outweighed losses for cyclical sectors such as banks and travel.

“I don’t necessarily see that we’re going to have a big correction even with these block trades going on in the market,” Carol Pepper, Pepper International chief executive officer and founder, said on Bloomberg TV. “There is not a lot of bad news lurking that’s going to truly cause a major correction at least the next two to three months, therefore your dips are going to be modest.”

Earlier in the session, Asian stocks were also in the green after a mixed day, as tech shares gained while communication services and consumer discretionary stocks declined. Japanese brokerage Nomura Holdings was among the worst performers in Asia, plunging the most on record after warning of significant potential losses from an unnamed U.S. client. The losses are related to Friday’s unwinding of trades by Bill Hwang’s Archegos Capital Management, according to people familiar with the matter. The Topix index climbed 0.5% despite the drag from Nomura. Meanwhile, China’s CSI 300 Index ended the day up 0.2% as analysts called a market bottom. The country’s tech sector saw limited losses despite the selloff on Friday in the U.S., with the Hang Seng Tech index falling 1.8%, as analysts and fund managers saw the rout as a buying opportunity. Baidu shares fell 5% in Hong Kong, while Bilibili dropped on its debut there. Meituan was another laggard on the Asian gauge as the Chinese food-delivery giant slid 7.2%, after warning that it will remain in the red for several more quarters despite record revenues. Markets in India were closed for a holiday.

In rates, Treasuries were off best levels of the day, richer by more than 3bps across long-end of the curve. Treasury 10-year yields are richer by ~2.5bp at around 1.65%, outperforming bunds and gilts by 2bp and 3bp; curve spreads are mostly flatter, 2s10s by ~2bps. No Treasury coupon supply this week, and quarter-end rebalancing is expected to buying of Treasuries

In FX, the Bloomberg Dollar Spot Index advanced as the dollar climbed against most of its Group-of-10 peers, while risk-sensitive currencies fell, led by Scandinavian currencies; the euro fell, trading near its lowest level since November against the greenback.  The pound led G-10 gains with traders focused on key levels in EUR/GBP against the backdrop of U.K.’s vaccination program far outpacing the European Union’s. Britons are being urged to follow the rules or risk a resurgence of the coronavirus as England takes a much-anticipated step toward exiting restrictions that have pummeled the economy and curtailed civil liberties. Commodity currencies were weighed down by a decline in oil prices after the giant container ship blocking the Suez Canal was partially re-floated. The yen was steady and the premium to hedge USD/JPY downside increased as spot is weighed down by deteriorating risk sentiment after Nomura Holdings warned of a “significant” potential loss arising from transactions with an unnamed U.S. client. The Chinese yuan fell to its weakest level since early December as investors sold emerging-market assets with weaker equity futures.

In commodities, West Texas Intermediate crude slid as much as 2.6% after the Ever Given was refloated in a first step to reopening the Suez Canal to traffic.

Looking at today’s calendar, we get UK February mortgage approvals, M4 money supply, consumer credit, while in the US we justhave the latest Dallas Fed manufacturing activity. Fed’s Waller speaks later. Later this week, U.S. President Joe Biden plans to unveil a further stimulus program with a tilt toward infrastructure. U.S.-China ties are also in focus, after a report that Washington isn’t ready to lift tariffs on Chinese imports in the near future, but may be open to trade talks.

Market Snapshot

• S&P 500 futures down 0.4% to 3,949
• STOXX Europe 600 little changed at 427.18
• MXAP up 0.2% to 205.17
• MXAPJ little changed at 676.86
• Nikkei up 0.7% to 29,384.52
• Topix up 0.5% to 1,993.34
• Hang Seng Index little changed at 28,338.30
• Shanghai Composite up 0.5% to 3,435.30
• Sensex up 1.2% to 49,008.50
• Australia S&P/ASX 200 down 0.4% to 6,799.49
• Kospi down 0.2% to 3,036.04
• Brent futures down 0.4% to $64.29/bbl
• Gold spot down 0.4% to $1,725.82
• German 10Y yield up 1 bps to 0.34%
• Euro down 0.1% to $1.1776
• U.S. Dollar Index little changed at 92.83

Top Overnight News from Bloomberg

• Biden will unveil the framework for a major infrastructure-and- jobs program on Wednesday in Pittsburgh, and later in the week offer the first glimpse of his 2022 budget — which promises to redirect federal funds to areas such as climate change and health care
• Turkish central bank Governor Sahap Kavcioglu said markets shouldn’t take for granted that he’ll cut interest rates as soon as April, when he sets monetary policy for the first time since his surprise appointment
• Chancellor Angela Merkel threatened to assert federal authority over pandemic measures to help stem the latest surge in Europe’s biggest economy

A quick look at global markets courtesy of Newsquawk

Asia-Pac equity markets eventually traded mostly higher as the region picked up the baton from last week’s late surge on Wall St although upside was capped and sentiment was somewhat choppy with participants tentative heading into quarter-end, as well as Friday’s NFP jobs data and Easter holiday closures. ASX 200 (-0.4%) failed to hold on to opening gains with the index pressured by underperformance in tech and a subdued financial sector, while a 3-day lockdown in the Queensland state capital of Brisbane and China’s final ruling for tariffs of between 116.2%-218.4% on imported wines from Australia clouded risk sentiment. Nikkei 225 (+0.7%) initially outperformed due to the recent JPY weakness and after the upper house of parliament approved a record budget of JPY 106.6tln for fiscal 2021 but with some weak spots including Nomura Holdings after it flagged a USD 2bln charge from losses in its US operations which was said to be linked to the Archegos margin call sell down. Note, gains for the Nikkei were trimmed ahead of the European entrance. Elsewhere, Hang Seng (+0.1%) and Shanghai Comp. (+0.5%) gradually composed themselves after the early choppy price action with sentiment eventually helped by stronger earnings from China’s megabanks including ICBC, CCB and Bocom, while Sinopec is higher despite posting lower profits and reports of the Co. is to acquire stakes in five assets from its parent valued at a total of nearly CNY 7bln. In addition, there was a large surge in Industrial Profits which grew by 178.9% Y/Y for January-February, although like the recent strong trade and activity data for China, it was most likely due to distortions from base effects and there was also some IPO-related disappointment in which Bilibili shares fell as much as 6% in its Hong Kong debut. Finally, 10yr JGBs were lower with prices subdued amid the outperformance in Japanese stocks, recent softness in USTs and with the lack of BoJ purchases in the market today, while the Summary of Opinions from the March meeting didn’t provide any meaningful fresh insights regarding the BoJ’s clarification that long-term yields can move +/-25bps from the 0% target.

Top Asian News

• Evergrande Sells Online Unit Stake for $2 Billion Before IPO
• Bilibili Drops in Hong Kong Debut as Tech Shares Lose Shine
• Turkey Says April Rate Cut Shouldn’t Be Taken for Granted
• Worst Yuan Selloff in Year Drives Traders Back to Daily Fix

European equities (Eurostoxx 50 +0.4%) have seen a relatively choppy start to the week ahead of quarter-end on Wednesday. From a macro perspective, concerns continue to mount about the impact of a third COVID-19 wave in some Eurozone countries with German Chancellor Merkel not convinced that measures taken thus far will be sufficient in slowing the spread of the virus. Stateside, White House Press Secretary Psaki stated that President Biden plans to split his Build Back Better package into two separate proposals in which the first part involving infrastructure will be unveiled on Wednesday and more details for the second part will be provided later in April. Note, stimulus hopes have not been sufficient enough to provide reprieve for US equity futures with the e-mini S&P down 0.4% and the e-mini Russell 2000 lagging, lower by 0.8%. Back to Europe, sectors are mixed with Food & Beverage, Media and Personal Goods faring better than peers. To the downside, Financials are a notable laggard amid losses in Credit Suisse (-13.8%) after the Co. warned there ‘could be highly significant and material (impact) to Q1 results’ due to a significant US-based hedge fund defaulting on margin calls last week; reports suggest the losses could be in the range of USD 3-4bln. Deutsche Bank (-4.5%) have also taken a hit this morning with reports suggesting the Co. also had exposure to the troubled fund, Archegos, however, sources have noted that Deutsche’s exposure is a fraction of what others hold. Elsewhere, softness can also be seen in other cyclically-exposed names (albeit, to a lesser extent) with Travel & Leisure and Basic Resources posting losses; downside for the latter has acted as a drag on the FTSE 100 (-0.1%). Oil & Gas names sit in mildly negative territory alongside losses in the crude complex after the refloating of the stuck tanker in the Suez Canal.

Top European News

• Merkel Warns Lenient Regions She May Take Control of Covid Fight
• BlueBay’s Pound U-Turn Signals U.K. Post-Brexit Pain Starts Now
• Deliveroo Shaves $1.3 Billion Off Valuation as Investors Revolt
• Cazoo Agrees $7 Billion SPAC Deal With Dan Och in Blow to London

In FX, the Dollar remains mixed against major counterparts in contrast to gains vs most EM currencies, but gradually rising following relatively rangebound trade as the index nudges a fraction above last week’s 92.917 peak within a tight 92.919-729 band. However, residual positioning for March 31 that coincides with the end of the quarter and 2020/21 financial year could spark more price action and volatility as Monday’s session unfolds, especially in absence of any key data or events, aside from the weekly ECB QE updates and Dallas Fed manufacturing business index. Looking at portfolio rebalancing models, signals are said to be strongest and most bullish for the Buck against the Yen, but Usd/Jpy continues to encounter decent offers into 110.00 and is currently hovering above 109.60 after Japan’s upper house of parliament voted in favour of a record Jpy 106.6 tn budget for the next fiscal year and the latest BoJ Summary of Opinions effectively reiterated policy support due to the adverse impact of COVID-19.

• CAD/NZD/AUD – Ongoing weakness in oil prices is weighing on the Loonie as Usd/Cad straddles 1.2600 awaiting minor Canadian data tomorrow before monthly GDP and ppi on Wednesday, while the Kiwi is still suffering from NZ Government measures designed to cap house prices in advance of building consents, ironically, with Nzd/Usd sub-0.7000 and Aud/Nzd nudging nearer 109.50 even though the Aussie is softer vs its US rival under 0.7750 in wake of Brisbane beginning a 3-day lockdown.
• GBP/EUR – The Pound is outperforming as the UK starts stage 2 of PM Johnson’s exit from lockdown, but also as fears over a shortage of vaccines ease with the prospect of Moderna supplies arriving shortly. Cable is holding on to the 1.3800 handle, albeit just and with a large helping hand from the Euro via cross flows that have pushed Eur/Gbp down to a new y-t-d base around 0.8510, while Eur/Usd languishes below 1.1800 between 1.1795-63 parameters amidst downbeat remarks from ECB chief economist Lane and German Chancellor Merkel mulling the use of federal law to tighten pandemic restrictions.
• CHF – A rise in Swiss sight deposits and domestic banks suggests a return to intervention during SNB quarterly policy review week, but the Franc is a tad firmer vs the Buck and Euro through 0.9400 and 1.1050 respectively ahead of the March KOF indicator on Tuesday.
• EM – Contrasting performances from the Lira and Yuan, as Usd/Try pares back from 8.1730+ following comments from new CBRT Governor Kavcioglu playing down prospects of a rate reversal at the April 15 meeting or even in the coming months, while Usd/Cnh climbs to circa 6.5700 following a 6.5416 Usd/Cny midpoint fix from the PBoC and more angst between China and the US over trade tariffs and Taiwan. Elsewhere, the Rub, Mxn and Zar are all down with crude, Gold and other commodities irrespective of Russia indicating that it might use some of its wealth fund to buy bullion.

In commodities, WTI and Brent front month futures opened the first session of the week softer, which is in-fitting with Asia’s lead, but have since seen some upside from intra-day lows with Brent now trading flat on the day. Initial pressure came as a result of the Ever-Given container ship being refloated in the Suez Canal. Henceforth, many oil-laden tankers backed up will be free to move, which would see an increase of supply reaching its intended destination and stop the blockage of one of the world’s busiest waterways. Moreover, the anticipated movement of the ship saw an immediate reaction as oil prices moved sharply lower as potential supply fears were curbed. Elsewhere, fundamental drivers remain the same with focus on vaccination progress and lockdown measures. The May WTI contract trades towards the top-end of the USD 60.00/bbl handle (vs low 59.41/bbl) whilst its Brent counterpart trades low USD 64.00/bbl handle (vs low 63.13/bbl). Looking ahead, notable risk events include the JMMC & OPEC+ meetings later in the week, where expectations remain that OPEC+ will maintain lower output levels. Spot gold and silver are both in the red, with more notable losses in the latter alongside USD strength. Spot gold trades around the USD 1,725/oz mark (vs high USD 1,732/oz) and silver sub USD 25/oz (vs high USD 25.08/oz). In base metals, LME copper resides softer in early morning trade after giving back gains seen on Friday. Finally, Chinese steel futures opened the week on a firmer footing, with rebar and hot-rolled coil up more than 3% in the wake of firm domestic industrial & manufacturing activity data.

US Event Calendar

• 10:30am: March Dallas Fed Manf. Activity, est. 14.5, prior 17.2

Central Banks

• 11am: Fed’s Waller to Speak at Peterson Institute

DB’s Jim Reid concludes the overnight wrap

As we start the week and the final three days of Q1, investors have been bracing for potential further block trades following a wave of sales on Friday that saw a number of US media companies and Chinese technology firms lose significant ground. Multiple news outlets have cited sources saying that Archegos Capital was behind the trades, with ViacomCBS and Discovery both seeing their largest ever daily declines on Friday, as each fell by more than -27%. The big concern over the weekend was whether more are coming this morning, though overnight in Asia markets seem little impacted by the developments overall, with the Nikkei (+1.13%), Hang Seng (+0.33%), Shanghai Comp (+0.79%) and Kospi (+0.14%) all moving higher. A notable exception to this was Nomura, however, which is the worst performer out of the 225 companies in the Nikkei this morning with a -15.05% decline, after the firm flagged a possible $2 billion loss thanks to transactions with a US client, which Bloomberg reported was tied to the Archegos moves. Nevertheless, US futures are also pointing lower overnight, and those on the S&P 500 are down -0.51% this morning.

The other big developing story overnight is that the Ever Given ship blocking the Suez Canal has been successfully refloated, according to Inchcape Shipping Services, with the ship currently being secured. The news has sent oil prices lower this morning, and WTI (-1.59%) and Brent crude (-1.27%) prices have both fallen in response, even though it isn’t yet apparent how long it’ll take before the container ship can be moved out of the way and the canal cleared for others to pass through. For reference, the ship has been obstructing the route since Tuesday and it’s longer than the Eiffel Tower in length, and a number of container ships have already taken alternative routes and gone round the Cape of Good Hope, even though that adds over a week to the journey time. The big question will now be how long before the Canal is back to normal service, as 12% of global trade goes through this route, and the issue has only added to the existing supply chain disruption thanks to the pandemic.

Looking to the week ahead, the spotlight will remain on the pandemic as investors are becoming increasingly worried at the rising number of cases in multiple regions, which in turn is raising the prospect of further restrictions and limits on economic activity. Europe in particular is facing a potential 3rd wave driven by the new variants, and over the last week we saw the German lockdown extended until April 18 (albeit with a U-turn over the Easter weekend restrictions), more French regions placed under lockdown, and a number of Eastern European countries also moving to toughen up restrictions. The coming days could see further measures announced, with German Chancellor Merkel saying in an interview last night that she could use federal law to take control of the pandemic response from the states. And this isn’t just affecting Europe either, with the Australian city of Brisbane announcing a 3-day lockdown from 5pm local time today due to an outbreak of the UK strain. The newsflow from Europe lately has shown a markedly different situation to the US, which is significantly outpacing the continent in terms of the vaccine rollout, while President Biden last week announced a new goal of 200m vaccine doses in the US within his first 100 days. By the close on Friday the gap between yields on 10yr US Treasuries and German bunds stood at their widest level in more than a year, with a spread of 202bps. More broadly, Covid-19 jitters have been evident elsewhere in financial markets, with oil prices down from their peak at the start of the month in part due to fears of weakening economic demand, whilst the STOXX Travel & Leisure Index in Europe is down by more than 3% since its peak less than 2 weeks ago.

Over in the US, one of the main highlights this week will be on Wednesday, when President Biden is due to deliver a speech unveiling his new infrastructure plan, as part of his “Build Back Better” agenda. We’re obviously yet to get the full details on the exact size and composition of the plan, but multiple outlets have reported that it will be in the $3tn range, with part of the cost offset via tax increases. In terms of what measures to expect, his campaign plans included a lot of emphasis on sustainability and the transition to a greener economy, while the tax measures he outlined included raising the corporate tax rate from 21% to 28%, along with higher income taxes on those earning more than $400,000. After that, the next step will be to turn the proposals into legislation, but as our US economists wrote in the world outlook, such a plan won’t win sufficient support from Republicans, so will need to go through the reconciliation process that allows legislation to pass the Senate with just a simple majority. This is what happened with the $1.9tn American Rescue Plan that Biden signed earlier this month, and they expect it to be passed along party lines in late summer or Q4.

Staying on the US, this Friday will also see the release of the March jobs report, where our economists are expecting a +800k increase in nonfarm payrolls as many states reopen or scale back lockdown measures, and this would be the strongest monthly job growth since August. Furthermore, they’re expecting that the unemployment rate will fall to a post-pandemic low of 6.0%. This would come against the backdrop of some decent labour market data out of the US recently, with the weekly initial jobless claims for the week through March 20 falling to a post-pandemic low of 684k. Nevertheless, even if the +800k growth in nonfarm payrolls were realised, that would still leave the total number of nonfarm payrolls more than 8.6m beneath its pre-Covid-19 pandemic peak, and this shortfall is something that Fed Chair Powell has been emphasising, which just shows the distance there’s still to go before the economic damage from the pandemic is repaired.

Elsewhere, the main data highlight will likely be the release of the manufacturing PMIs from around the world on Thursday. The flash releases we’ve already seen have been incredibly strong, with the numbers for both Germany (66.6) and the Euro Area (62.4) coming in at all-time highs, while the US was also at a decent 59.0. An interesting question will be whether the strength in the price gauges we saw in the flash PMIs will be reflected in other countries too, since that would add further support to the idea that inflationary pressures are building in multiple regions. The other data release of note from Europe will be the March flash inflation prints, with the Euro Area number coming out on Wednesday. Our European economists expect headline HICP to pick up to +1.4% yoy, and core inflation to rise to +1.2%.

To recap last week now, risk assets had reached new highs by Friday as the seemingly relentless rise in global bond yields took a breather following their steep climb. The S&P 500 rose +1.57% on the week, closing at a record high following a +1.66% gain on Friday – which also marked the largest single day move for three weeks. The weekly move was driven by cyclicals as financials, industrials, and energy stocks gained while technology stocks continued to underperform. The NASDAQ fell back -0.58% on the week even with a strong Friday gain (+1.24%), while the highly concentrated megacap NYFANG index lost -4.04% over the course of the week and is now down -0.43% YTD. European stocks somewhat shrugged off worries of further shutdowns as the STOXX 600 gained +0.85% over the five days to reach a post-pandemic high, with the German DAX (+0.88%) outperforming other bourses slightly.

Over in rates, 10yr Treasury yields finished the week -4.9bps lower (+3.9bps Friday) at 1.672% – bringing an end to a run of 7 consecutive weekly moves higher. The move was driven by lower real yields (-10.1bps), which overcame increasing inflation expectations (+5.1bps), which themselves reached new heights. Indeed, 10yr breakevens closed at 2.36% on Friday, their highest level since 2013. The rally in rates was seen across the curve as 30yr yields fell -5.7bps on the week and shorter-dated 5y yields fell back -1.9bps. In Europe, there was a similar move lower over the week, with 10yr bund yields down -5.2bps last week and gilts dropping -8.1bps. The moves in European sovereign debt came as weekly data showed the ECB’s net purchases under their Pandemic Emergency Purchase Programme (PEPP) rose to €21.1bn in the week to March 19, which was the fastest pace since December.

In terms of data from last Friday, the US personal income and spending releases for February showed a pullback after the $600 stimulus check in January and ahead of the anticipated March spike from the current round of checks. Incomes were down -7.1% (-7.2% expected) in February, following a +10.1% rise in January, while spending fell -1.0% (-0.8% expected) after January’s upwardly revised +3.4% increase. The final reading of the University of Michigan’s consumer sentiment index for March rose to a one-year high of 84.9, up from the initial 83.0 reading earlier this month. Under the surface a gauge of expectations rose 9 points to 79.7 – the largest one-month advance since 2009. Meanwhile in Europe, the Ifo business expectations indicator for March from Germany rose to 100.4 (95.0 expected), the highest level in almost three years. Italian consumer confidence for March actually fell back, however, dropping to 100.9 from the prior month’s 101.4 reading. Lastly, UK retail sales excluding fuel for February rose +2.4% mom (+1.7% expected), though down -1.1% yoy.

Czech billionaire Petr Kellner, the tiny Central European country’s richest man, was among five people killed in a helicopter crash in Alaska’s backcountry over the weekend while he and several other guests at a local ski lodge were on a trip. 

The Airbus AS350 B3 carrying Kellner and the others crashed in unknown circumstances about 50 miles east of Anchorage at roughly 1835ET on Saturday, according to local officials quoted in the Times of London.

Kellner, 56, had a net worth of about $7.5 billion according ot the latest Forbes estimate.

The others who died were Gregory Harms, 52, of Colorado, Benjamin Larochaix, 50, of the Czech Republic, and two Alaskans, Sean McMannany, 38, and the pilot, Zachary Russel, 33, of Anchorage. Another individual who was on board was in serious but stable condition.

The passengers had been flying from the Tordrillo Mountain Lodge (about a 40 minute flight from Anchorage, a spokeswoman for the lodge said) at the time the helicopter crashed.

Kellner and the Coloradoan Larochaix were said to be “loyal and frequent” guests at the lodge, while Harms was a pioneering heli-ski guide in Alaska who had worked at the lodge for years.

The spokeswoman added: “This news is devastating to our staff, the community in which we operate and the families of the deceased.” The lodge says it is the longest operating heli-skiing lodge in Alaska. Packages start at $15,000 per person.

For those who aren’t familiar with it, heli-skiing involves off-trail, downhill skiing or snowboarding reached by helicopter, instead of a ski lift.

Kellner is the latest uber-rich person to perish in a US helicopter accident. The most high-profile figure, of course, is Kobe Bryant, who died in Southern California last January.

The Ever Given container ship, stuck in the southern part of the Suez Canal, has been partially refloated, according to Egypt Today Magazine. Tugboat efforts will continue Monday around high tide to clear the blockage in one of the world’s most important shipping lanes. Ever Given has been paralyzed in the canal for nearly a week as more than 450 ships are queued up, waiting to transit the vital shipping lane while others have rerouted around the Cape of Good Hope. 

A statement by the Suez Canal Authority (SCA) said the container ship has “responded to the pulling and towing maneuvers.” We reported Sunday at least 14 tugboats and a dredging vessel have worked around the clock for days to move the Ever Given. SCA gave no timeline when the canal would reopen since the vessel is only partially refloated. 

Egypt Today Magazine, using VesselFinder, shows Ever Given’s positioning has changed. The vessel’s bow is positioned more into the channel than ever before. 

The local news agency tweeted a video of the salvage team blaring their foghorns in jubilation after the vessel was partially refloated. 

#BREAKING | Suez Canal workers, captains are celebrating the moment of freeing Ever GIVRN vessel, chanting “Thank God” & “God is the Greater“#Egypt #Suez #SuezCanal #EVERGIVEN #Evergreen #BreakingNews|#قناة_السويس #السفينة_الجائحة #عاجل pic.twitter.com/MpGnuHd6LD

— Egypt Today Magazine (@EgyptTodayMag) March 29, 2021

VesselFinder shows Ever Given’s trajectory has dramatically shifted into the channel.

#BREAKING | Ship-tracking service VesselFinder has changed Ever Given’s status to under way on its website. raising hopes the busy waterway will soon be reopened.#Egypt #Suez #SuezCanal #EVERGIVEN #Evergreen #BreakingNews|#قناة_السويس #السفينة_الجائحة #عاجل pic.twitter.com/lz5EuNM5Ty

— Egypt Today Magazine (@EgyptTodayMag) March 29, 2021

SCA confirmed on Monday Ever Given changed its course and is “80% refloated after it was partially freed.” 

Suez Canal Authority (SCA) announced Ever Given ship changed its course with 80% after it was partially freed. #Egypt #Suez #SuezCanal #EVERGIVEN #Evergreen #BreakingNews|#قناة_السويس #السفينة_الجائحة #عاجلpic.twitter.com/HxFAW2LUzw

— Egypt Today Magazine (@EgyptTodayMag) March 29, 2021

Egypt Today Magazine notes tugboats have led to the vessel’s partial refloating, and the stern is now 102 meters away from the bank of the canal. There will be additional maneuvers later today once high tide arrives to fully refloat the vessel and position it in the middle of the channel. 

As a result of the positive news, crude prices retreated, with Brent crude futures dipping as much as 1.5%. 

Peter Berdowski, chief executive officer of Boskalis Westminster, the salvage team’s parent company, told Bloomberg with the vessel partially refloated, the stern of the ship is “still very stuck in the mud.” 

“Putting the rear end of the ship afloat was the easy part,” Berdowski said to Dutch NPO Radio. “The challenging part will be the front of the ship. Now, we will start working at the front.”

There are still no timelines when the vessel will be fully refloated. More than 450 ships have been stuck around the canal, waiting to transit the canal. Global supply chains have already been affected as some vessels have rerouted around the Cape of Good Hope. 

Even when Ever Given is refloated – the backlog of vessels, 450 and counting, would mean that it would take at least ten days to resume normal activity in the canal, meaning the Suez crisis is not over. 

“It’s one thing to refloat the ship, and it’s another thing to clear the canal of traffic completely,” Hugo De Stoop, CEO of oil-shipping firm Euronav, said to Bloomberg Television. “Whatever has been accumulated so far will take time to clear. Tentative timeline is probably two to three weeks, because the Suez canal was used probably at full capacity.”

With the vessel partially refloated, and once high tide returns, the vessel’s own propulsion system might be used in conjunction with the dozen-plus tugboats. 

The good news is that the worst-case scenario of unloading the vessel might be avoided. As JPMorgan’s Marko Kolanovic told clients last week, any reloading of the vessel risks “ship breaking.” 

Authored by Daniel Lacalle,

If we looked at most investment bank outlook reports for 2021, one of the main consensus themes was a strong conviction on a rapid and robust eurozone recovery. They were wrong.

This week, Capital Economics joined other analysts and downgraded the eurozone growth, highlighting “We now think that the euro-zone economy will recover more slowly than we previously anticipated, growing by about 3% this year and 4.5% in 2022. Meanwhile, euro-zone government bond yields seem unlikely to fall much further, and with Treasury yields set to increase significantly, we expect the widening yield gap to cause the euro to weaken against the US dollar”.

This wave of downgrades, which includes the OECD and European Central Bank estimates, comes with the same-old and tired upgrade of next year’s expectations, which will likely be downgraded again further down the line.

Most politicians blame the eurozone weakness on the pandemic and the slow vaccine roll out. It is partially true. None of those two factors are detached from one of the main traits that makes the eurozone consistently disappoint in growth and crisis periods: massive bureaucracy.

The slow vaccine roll-out of the eurozone is evident in Bloomberg Economics’ Covid-19 resilience ranking and Our World In Data vaccines administered per 100 people falling significantly below Israel, Chile, the United States or the United Kingdom, despite the eurozone economies having the highest levels of public healthcare spending in the world. The reason why the eurozone lags in vaccinations comes from a bureaucratic and slow process in the approval and purchase of vaccines.

The European Union delayed unnecessarily the approval of vaccines that had already been tested and confirmed by US and UK health authorities, but also implemented a rigid, complicated, and tedious process in reaching commercial agreements with the vaccine supplying companies. Unfortunately, instead of recognising the mistakes made, politicians decided to start a blame war accusing Astra Zeneca and other companies of not fulfilling contracts, something that has been disproven numerous times but is further delaying the vaccination efforts.

The Financial Times highlighted that “the EU’s faltering vaccination campaign has been hamstrung by botched central procurement process, supply shortfalls, logistical hurdles and excessive risk aversion from some national medical regulators”. The European political elite was so proud of its healthcare system and centralized procurement process that failed to understand the importance of time and efficiency in this pandemic. While the UK has now administered 48.5 vaccine doses per 100 people and the US 40.8, the EU has only managed 14.9 according to Our World In Data.

The eurozone’s economic problem do not come from just a slow vaccination, but overly aggressive lockdowns. Between October and November, Europe’s leading economies decided to shut down the economy aggressively to prevent an increase in cases. Despite France’s extremely severe lockdown, one of the most aggressive in the world, daily new confirmed cases per 100 people went from 250 cases at the beginning of October to 522 as of March 26th. Daily new cases rose rapidly and fell in the month of November but have risen steadily since January. In Italy, new cases went from 70 in October to 369 by March 26th. In Germany, from 117 to 179 in the same period. In all of them, daily new cases have steadily risen since bottoming in January even with severe lockdowns.  Shutting down the economy for prolonged periods of time generates long-term side effects in jobs and growth that will likely hurt the recovery and create important social challenges. We cannot forget that the eurozone still had an unemployment rate of 8.3% and more than seven million furloughed jobs at the end of February.

Massive stimulus plans have been implemented, with the European Central Bank increasing its balance sheet to 63% of the eurozone GDP vs the Fed at 36%, and money supply growing at a 12% annualized rate in the euro area. Fiscal stimulus is also enormous, with fiscal impulse and liquidity measures ranging between 10% (Spain) to 50% of GDP (Germany) in the main economies.

It is important to note that it is not just how much is spent, but where and when. A significant part of the fiscal stimulus in Spain, France, Italy, and Germany has been targeted at maintaining current government spending, and the measures to support businesses have only been decisive in Germany and France. However, large, and decisive measures to support businesses may fail as prolonged lockdowns lead to an insolvency crisis and inevitably a relevant part of those support mechanisms will zombify the economy, especially as this was an important risk that already existed in the eurozone before Covid-19, according to the Bank of International Settlements.

We cannot forget that the eurozone recovery might be to go back to a weak situation, which was evident before Covid-19. Germany was on the verge of recession at the end of 2019 and France and Italy were delivering zero growth in the last quarter. The eurozone slowdown was, in fact, a widespread concern for 2020 despite all the liquidity and fiscal measures implemented, negative rates, massive repurchases of sovereign bonds by the ECB and a now forgotten Juncker Plan that was launched as the most important investment program in the European Union a few years before the pandemic and whose results were disappointing to say the least.

The Eurozone has enormous potential and could become a global leader in the exit from the crisis and attraction of investment. To achieve it, it needs to take urgent measures to reduce bureaucracy, unlock job and business creation potential and reduce damaging taxation. The time to do it is now.

President Biden said on Thursday that more than 100 million stimulus checks are being delivered to needy households since the American Rescue Plan was signed into law weeks ago. 

This again brings us to what Refinitiv said is the most important question: Where are stimulus checks ending up? 

Refinitiv partnered with Maru Public Opinion, a panel and data service insight firm, and polled 1090 randomly selected adults who qualified for the stimulus program. These individuals had income less than $75,000 or combined gross income that was less than $150,000. The results were weighted by education, age, gender, and region found an overwhelming number of respondents plan to “save the money” and or “pay down debt.” Only 5% of the respondents said they would buy ‘stonks’. 

“Refinitiv indicates that eight in 10 (80%) of Americans plan to mainly put their stimulus checks into either savings (48%) or pay down debt (32%). Of the remaining Americans, only one in five (20%) plan to mainly do otherwise by either spending (15%) or investing (5%) the amount they receive.” 

Respondents were then given the following list of questions and asked, “what are the four most likely places where your household stimulus money will end up?” Many of the respondents said they would save stimulus checks to pay down debts, buy groceries, purchase consumer goods, and pay basic living expenses. Only a small amount of respondents said they would deposit the funds in their Robinhood or 401k accounts. 

The results are similar to a recent Bloomberg/Morning Consult survey where respondents said they would use the money for savings, food, and housing. 

This time around, it appears Americans aren’t using their stimulus checks to gamble on stocks, options, and or crypto. JPM’s Peng Cheng made this conclusion “over the past week, despite the beginning of the $1,400 stimulus check disbursement, we have yet to observe a meaningful pick-up in retail trades as a % of total orders.”

This makes intuitive sense for two reasons: First, the stock market has fizzled as the recent outright eruption of meme stocks and overall main equity indexes have stalled in recent weeks. The second reason is the economy is deeply scarred, with more than 18.9 million Americans receiving unemployment benefits as of the first week in March. 

For the banks who wrote notes about Biden’s trillions ending up in financial markets, so far, that has yet to materialize to generate another massive speculative rally. 

Deutsche Bank is one of the banks that believes: “stimulus checks could accelerate the large inflows into U.S. equities.” 

Japanese bank Mizuho is another who found 10% of U.S. stimulus checks may be used to buy Bitcoin and stocks, equating to around $40 billion in total. 

With Refinitiv finding that many people are using stimulus checks to save and pay down debt, along with JPM’s analysis of limited pick-up in retail trades since the latest distribution – this could be bad news for stock inflows.