Market movers today
This week starts off with the ECB Survey of Professional Forecasters and it will be interesting to see the near-term growth and inflation expectations. However, like the rest of the data we need to take it with a pinch of salt. The ECB meeting last week took this into account when sweetening the TLTRO terms. We also get final PMIs today.
In Scandies, focus today is on the DKK currency reserves. While we do not expect any FX interventions to have taken place during the month of April, we will focus on how much foreign debt the government raised in April.
On Thursday we have a host of important events, notably the Norges Bank meeting. We will also get the EC spring forecast, which includes new deficit and debt projections, and the US jobless claims. On Friday we have the US labour market report.
Selected market news
The current period is dominated by earnings reports for Q1 from most financial institutions including the world’s largest banks and the results are set to be dire due to the real life macroeconomic stress test that banks are currently facing. The largest impact on bank earnings will be and have already shown to be loan loss provisions, which are expected to reach a total of USD50bn in the US and Europe alone. The resulting behaviour of banks will be an important indicator to supervisory authorities as to how far regulation has come in ensuring the solidity of the financial system. So far the signs are good with most banks reporting increased lending activity during recent months and thus not scaling back on credit growth, which is exactly what regulators want – namely that borrowers of good quality are still able to obtain credit even in bad times, which was a problem during the financial crisis. However, there is currently a fairly large discretion as to the size of the provisions taken and especially with respect to the macroeconomic scenarios used to model these, meaning that the hit on profits will also diverge between banks. For example, Deutsche Bank, according to the Financial Times, increased its credit provisions by just a factor of 3, while UBS’s increased by a factor of 13. Also, it is not clear whether current lending growth can be sustained meaning that in the EU, regulators have introduced various measures in order to limit the hit taken on profits by introducing more lenient requirements for some exposures and pushing upcoming regulation back a few years.
Five million Italian workers in the construction and manufacturing business will return fully to work today, while retailers will not be able to resume normal service until 18 May and bars, restaurants and hairdressers need to wait another month before opening doors to customers. This has sparked some debate in Italy with some companies and politicians arguing for excess caution and ex-PM Matteo Renzi saying that he will reconsider his support to the current coalition. New figures out on Sunday, according to Bloomberg, showed that the number of new cases was 1,389 and the number of deaths were 174, which is the lowest number of fatalities since the lockdown was imposed on 10 March.
