Market movers today
Today looks rather measured in terms of data releases and focus will stay on broader risk sentiment in light of a flare up in US-China tensions in recent days and as some US states may be at risk of new virus waves due to early reopenings.
This afternoon US ISM non-manufacturing for April will be released. We are set to see a significant drop after the lockdown took effect in the US.
In the political sphere, the German constitutional court (GCC) will publish its ruling on the legality of the PSPP (originally scheduled for 24 March, but moved due to COVID-19) at 10:00 CEST. This has been a long process and it is not really an either-or case. We expect the GCC to repeat the European Court of Justice’s decision that PSPP is not monetary financing and that it is a monetary policy measure. However, with the duration of the case, it seems more complex than meets the eye.
In Sweden, SCB releases the first version of its new GDP-indicator for Q1, something similar to the ‘advanced estimate’ of US GDP.
Selected market news
Risk sentiment improved during the course of the day on Monday after Trump administration officials said that the US is not looking to take ‘punitive measures’ against China on virus grounds. This comes after US-China tensions flared up over the weekend after President Trump said the US could impose new tariffs on China to punish it for alleged spreading of the coronavirus.
Overnight the Reserve Bank of Australia (RBA), as widely expected, left its cash target rate unchanged at 0.25% and maintained its 3Y yield target at the same level. The RBA launched its first-ever asset-purchase scheme in March and today echoed most other major central banks in reiterating its pledge to do what is necessary to get the economy back on track after the COVID-19 shock. AUD/USD steady around 0.6450 upon announcement.
US equities broadly ended Monday slightly higher with Nasdaq again the frontrunner, up 1.2% on the day. The Asian session has proved more mixed with Chinese indices higher but Nikkei down 2.8% after a bout of JPY strength. US Treasury yields were slightly up on the day with the 10Y yield now just above 0.63%. USD again trades on a somewhat weak footing although EUR/USD has in fact dropped close to 1.09 again. Crude oil prices marched higher still on Monday with Brent now above the USD28/bbl mark.
Near term, focus in risk assets remains on US-China tensions, earnings reports and the reopening of Western economies. In our view, Europe seems on track for a gradual reopening, but in the US it is a concern to us that states may be opening up too early judging from virus numbers. This poses a clear risk of the outbreak gathering pace again as the reopening unfolds. Meanwhile, tensions between the US and China are here to stay and we would not be surprised to see some kind of US sanctions on China.
