Market movers today
After an eventful day yesterday, we end the week in a more quiet fashion as some markets are closed for Labour Day/May Day celebrations.
The US ISM manufacturing index for April will likely mirror the steep fall already observed in the flash PMI last week. However, lengthening supplier delivery times due to supply chain disruptions continue to introduce an upward bias in the index.
The OPEC+ supply cuts agreed upon early in April are scheduled to take effect today. Despite the cuts, we expect downward pressure on the oil price to prevail until economies start to open up again on a larger scale (see Oil hit by ‘black April’ but stabilising forces ahead , 24 April).
No major events scheduled in the Scandi region today.
Selected market news
Risk sentiment darkened somewhat on Thursday after tech giants Amazon and Apple cautioned of a possible loss and refrained from guidance, respectively, and as the stream of US data continued to worsen. Meanwhile, on Thursday afternoon the Fed came out saying that it will expand loan offerings and qualification rules for its forthcoming USD600bn Main Street Lending Program, unveiled earlier this month. Following a dire day for European stocks, losses in US equity indices were more contained with S&P down less than 1% and sentiment improving in Asia ex-Japan. US Treasury yields ended the day close to flat with the 10Y just off 0.62%. Crude oil prices continued their winning streak with WTI reaching USD20/bbl and Brent USD27/bbl. Broad dollar on the rise overnight where bids for safe-haven currencies returned and notably the Scandies are giving up a bit of their gains of recent days.
At yesterday’s meeting the ECB did not change the modalities of either of its asset-buying schemes (PEPP, APP) neither in size, composition or similar. However, the ECB made a ‘pseudo rate cut’ for banks from June and 12M ahead by lowering the rate on the targeted longer-term refinancing operations (TLTRO) by 25bp. Further, the ECB plans to start conducting seven unconditional liquidity operations this year to alleviate the economic and financial consequences of the coronavirus pandemic, so-called PELTROs. All in all, this implies that all relevant ECB policy rates from June 2020 through to June 2021 lie in the range between -25bp and -1%; this helped steer short-end rates lower yesterday, taking e.g. the 2Y EUR swap rate down some 3bp. We now expect the ECB to step up its PEPP by another EUR250bn and extend the APP scheme at the June meeting. In essence, while the ECB may not directly be in the business of closing spreads, the Governing Council has demonstrated that it is keen to avoid widening and now gives the torch to banks to close spreads while standing ready to adjust all measures if required. After a relatively steady course during the ECB meeting, EUR/USD jumped above 1.0950 around the time of the 4pm CEST fix in a sign of possible month-end flows steering the cross.
