Market movers today
We have a fairly quiet day and week on the data front ( the most important releases are inflation numbers in the US and the euro area on Friday), so market attention will focus most notably on the trade tensions between the US and its big trading partners Europe and China.
On the trade issue, we will watch for any react ion from Europe on Trump’s pledge to levy tariffs on European car imports. Another important event is Saturday 30 June, when the US government is set to announce plans for restricting Chinese investments.
On the European side, the European Council meet ing on 28-29 June will be an important event to watch out for, as to whether the German government crisis is resolved with European agreement on immigration, what line the new Italian government will take and possibly for the Brexit process.
Selected market news
In Turkey, Tayyip Erdoğan had a clear victory with 53% of the votes, obtaining a double win in both the presidential and parliamentary elections. The main opposition leader Muharrem Ince yesterday accepted his defeat but said the elect ion had not been fair, claiming vote manipulation. TRY gained overnight .
On Friday night there was an interest ing interview with influential ECB member Peter Praet in which he said, ‘What we did last week was to express an anticipation that net asset purchases would end at the end of the year. We didn’t say we were now deciding to stop the programme in December. We still have six months to go. We translated the increased confidence we expressed about developments in the economy and inflation into an anticipation about the APP’. So far most analysts have concluded that the asset purchases would definitely stop in December. But now Praet basically says that no firm conclusions have been made, though he admit s t hat , ‘… to anticipate the end of the programme is to give a strong signal’. But the conclusion is clear from our point of view: the ECB has no intention of backt racking from the dovish signals at the latest ECB meeting. In that respect also note that the voluntary repayment at TLTRO2 on Friday was a limited EUR11bn, and the risk of a tightening of the liquidity situation in the eurozone remains very low. For more see ECB research: TLTRO2 – EUR 11bn of voluntary repayments, 22 June.
On the political scene, all eyes have been on the informal mini EU summit for 16 count ries in Brussels on migration. No formal agreement was made ahead of the 28-country summit on Thursday. It also means that politically, the pressure remains on Merkel in German politics.
European equity markets took their lead from the news that Trump would levy a 20% tax on European-produced cars. The market init ially came under pressure but managed to close in positive territory. The Peoples Bank of China lowered the reserve requirements over the weekend by USD100bn for Chinese banks (the reserve rat io was lowered 0.5pp). CNY has weakened 1.6% against the US dollar over the past week. It seems that the Chinese authorities are preparing for a prolonged trade war with the US. Bloomberg reports that the US administration is planning t o curb Chinese investment in ‘industrial significant technology’.
