Market movers today
A range of final Services PMIs for April are released across European countries , while German factory orders for March will bring one of the first hard data releases showing the magnitude of the hit to industry in the early stages of the lockdowns.
Ahead of Friday’s non-farm payrolls, the ADP private sector employment report for April out today will give a flavour about the rise in US unemployment during the month and whether government support measures such as the Paycheck Protection Program targeting SMEs are having any positive effects on layoffs.
In Sweden Services PMI for April is due out, while we expect housing prices in Norway to have dropped around 1% m/m in April (see next page).
Selected market news
Market sentiment is mixed this morning following yesterday’s equity rally. Oil has rebounded significantly amid signs of physical commodity demand recovering as economies gradually reopen. Consequently, Brent crude is now back above USD30/bbl for the first time since 15 April. Near term, focus in risk assets remains on US-China tensions, earnings reports and progress in the reopening of Western economies.
In a surprise decision Germany’s Constitutional Court (GCC) yesterday ruled that ECB’s Public Sector Purchase Programme (PSPP) violates European Union treaties implying German authorities have acted unconstitutionally by not challenging this quantitative easing programme. The ECB now has three months to explain why it has acted ‘disproportionally’. The exact definition is unclear but we interpret it as regards to size, duration, purchase rate and economic situation. More generally the key concern is whether QE breaks EU law banning central bank financing of governments.
While a clear blow to the ECB and not least the European Court of Justice, for now the bond purchases will continue unaffected. We think the primary market concern lies in the potential limitations that this verdict may hold for the ECB in the future amid lack of Eurozone fiscal cooperation. The ECB Governing Council yesterday made an initial remark about the verdict stating that it ‘remains fully committed ‘ to bringing inflation higher.
In Scandinavia the rebound in energy prices is a clear positive for energy-exporting Norway. What is more, the gradual reopening of the Norwegian economy so far seems to have had a limited impact on the reproduction number. This is positive for the potential further reopening, which is set to take place in the coming weeks. In March and early April, Norway suffered a sharp rise in unemployment to 15.5%. Meanwhile, unemployment seems to have peaked in mid-April and yesterday data from the Norwegian Labour and Welfare Administration (NAV) showed a further decline to 14.6% driven by service jobs and retail jobs. We expect unemployment to decline sharply in the coming months as especially temporarily laid off workers return to work.
