Fed Eases Bank Capital Requirements as COVID-19 Continues to Disrupt Markets

 

The Fed announced measures to temporarily ease capital requirements for big banks. On Wednesday, the Fed relaxed rules around how big banks account for UST holdings and deposits held at the central bank by excluding them from the supplementary leverage ratio calculation – a measure of capital as a percentage of loans and other assets. The loosening of the ratio calculation is meant to further promote banks’ lending to consumers and businesses who are struggling from the pandemic fallout. Boston Fed President Eric Rosengren voiced his support of the Fed’s decision, stating that “we’re creating these facilities to leverage Treasury debt to try and minimize how bad the unemployment shock is on the US economy.” US Treasury yields/swap rates fell 9 basis points across the curve during yesterday’s trading session and have held within a tight range thus far this morning, with the 10yr UST yield near 0.60%.

 

 

Crude futures bounce back. Crude prices jumped early this morning as markets hope for a truce in the price war between Saudi Arabia and Russia. President Trump announced that he is confident that the price war will end in the coming days, adding “It’s too simple. They both know what they need to do.” Also contributing to the rise in crude, last night it was reported that China would be increasing its oil demand in an effort to take advantage of the low prices. After declining more than 60% in Q1 2020, WTI futures rose 10% to $22.35/barrel, while Brent crude oil rose 11% to $27.42/barrel — one of the sharpest rallies on record. Tomorrow President Trump is scheduled to meet with the heads of large US oil companies like Exxon Mobil Corp. and Chevron Corp. to discuss ways to stimulate the industry

 

 

Day ahead. Weekly US jobless claims came in at 6.648 million this morning, doubling the record 3.28 million from last week. The US trade deficit for February narrowed to $39.9 billion from $45.43 billion in January. Economists predict US factory orders for February to rise 0.2% from January’s figures. Minneapolis Fed President Neel Kashkari will speak about the coronavirus and its impact on the economy this afternoon.