Market movers today
Today’s highlight in terms of data releases is the German IFO. We expect the IFO expectations to have risen slightly in line with ZEW earlier this week and also as the opening up of the economy has begun. However, the current situation assessment is likely to be poor.
Tonight Italy is up for review by SP, which is set to be very important for investor sentiment. Italy is currently rated BBB but with a negative outlook, so there is a risk of a downgrade given the strong rise in the budget deficit in 2020.
In Norway, we get preliminary GDP data (page 2).
Selected market news
The EU leaders yesterday agreed to task the Commission with a revamp of EU’s seven-year budget and to set up a budget-linked recovery fund. However, deep differences remain on how to do this. No official figure was set on the plan but officials believe that EUR1-1.5tn would be needed. At the press conference Commission President Ursula von der Leyen said that the EU would find a ‘sound balance’ between ‘grants and loans’ and confirmed that the EU would boost the firepower of the recovery fund by borrowing in the market. Importantly, Chancellor Merkel endorsed the plan, acknowledging the plan would mean higher budget contributions from Germany.
Even though few details were given it seems that the recovery fund will not be up and running before 1 January 2021. Unsurprisingly, Italian Prime Minister Conte, potentially facing a rating downgrade from SP tonight, called for the fund to be delivering grants by the second half of the year. He still welcomed the recovery fund in a video-address.
Despite the apparent lack of details we believe that the periphery bond market will have a positive opening this morning, even though the outcome was probably close to market expectations and lacked details. However, looking at EUR/USD the market seemed unimpressed as the cross dropped after the announcement.
US equity markets started out on a strong footing but optimism fizzled out during the session as FT reported that a Chinese trial study had shown no effect on COVID-19 from the otherwise promising Gilead drug remdesivir. The news came from a report that was published accidently by the WHO and seen by FT. Gilead warned that the report included ‘inappropriate characterisations of the study’ and that the study results are inconclusive.
The US claims data showed another new 4.4m claimants and the number of claims are now a stunning 26m in just five weeks. The negative market sentiment continued in the US after-hours trading, especially as Intel withdrew its 2020 forecast on ‘significant’ uncertainty’.
On the positive side, we note that the US Congress passed an USD484bn new relief package for small businesses, hospitals and coronavirus testing.
