With most of the acute part of the financial panic behind us, investors are now looking more at how covid-19 will affect macro fundamentals and how that could drive markets going forward. But that does not mean there will not be more volatility ahead in the markets. For example, the week of March 13th the markets were strong, but last week, not so much along with oil prices tanking in the negative.

Markets have moved from tsunami crashes to a gentler ebb and flow that will likely match well with sentiment about covid-19, the current economic downturn, and the timing of the potential recovery. One thing that has not changed is, that it has always been difficult to predict the market focus on a day-to-day basis.

The European Central Bank (ECB) also has a pretty robust policy, in which it announced the Pandemic Emergency Purchase Program (PEPP) to buy both government and corporate bonds. There’s also been a lot of talk about a more aggressive joint initiative from European fiscal policymakers, although the typical divide as well as the challenge of making a consensus decision has held back some of the proposals. With that said, a little over a week ago, the eurozone finance ministers in the Eurogroup did however manage to reach a deal that included three programs that will provide favorable financing to member states, worth up to €540bn. 

The deal is a positive step as it showed compromise between Italy and the Netherlands. However, there is still no commitment from members to share the costs of the crisis. There is the potential for the recovery fund to include transfers and there will be some support to fund it with “coronabonds,” although doubt still remains whether northern countries will agree to mutualised debt issuance.

On 15 April, finance officials of the G20 agreed to suspend debt service payments for the world’s poorest countries from May 1 through the end of the year, reportedly freeing up more than €20bn for the fight against covid-19. The European Central Bank will meet on Thursday, with the ink barely dry on its emergency bond-buying scheme, and markets are already asking what more it will do to help the euro zone economy through the coronavirus crisis. Companies in the European Union hit by the coronavirus will be able to ask for a government loan of up to 5% of their 2019 turnover under a measure proposed by the European Commission.

In Italy, Prime Minister Giuseppe Conte, struggling to map a way out of Italy's coronavirus crisis and facing political fire from all sides, has won much-needed breathing space from the European Union. However, market gauges measuring euro break-up risk emanating from Italy are starting to flicker, flagging the risk that another existential crisis may be building for the euro zone.