April 23, 2020 - Market Update

Solid earnings in the morning sparked the rally in risk assets and it gradually picked up momentum throughout the day.  Snapchat, Chipotle, and Texas Instruments were a few of the companies making headlines.  Crude continues to rebound after a rocky start to the week.  It’s interesting because the rally in crude (+37%) was driven by President Trump instructing the U.S. Navy to destroy Iranian gunboats if they harass American ships.  The market is betting on friction in the Middle East to help undercut the oil glut.  This should shed some light on how misaligned supply and demand are in oil right now.

The European Central Bank (ECB) announced that it will be loosening its eligibility requirements on collateral used in Eurosystem credit operations.  In other words, they are accepting collateral that would otherwise fall below the current minimum credit quality requirements.  This was implemented to ensure ample liquidity for banks to provide to firms and households during the current pandemic.

While politicians can argue about who has the authority to reopen the economy, in the end it is consumers and businesses that will make that decision based on safety and security. Early evidence from China (which is at best an untrustworthy data source), is not good. March retail sales fell 19%, suggesting the combination of behavioral changes and the material loss of wealth and income meaningfully held back consumption.