Markets
European stock markets lost another 3% today. The EuroStoxx 50 declined below the 2800 support area, ending the rebound since mid-March. This level was tested on several occasions since mid-April. Next support arrives at 2626 which is the final hurdle before the Covid-19 sell-off at 2302. Yesterday’s webinar by Fed Chair Powell was the stroke which broke the camel’s back. Despite readiness to act if necessary, he painted a very grim eco outlook. The recovery may come more slowly than we like with a lasting impact on consumption, investments and the job market. He additionally highlighted the risk that the current liquidity crisis could morph in a solvency crisis. The unusually stark warnings by the top central bankers resonated especially in markets which thrived on a more positive economic scenario since monetary and fiscal authorities opened the liquidity taps. Today’s eco calendar eyed meagre, but the sole and key release, US weekly jobless claims, at least confirmed Powell’s dire message. Another nearly 3 million US citizens filed for claims (vs 2.5 million expected), putting the total number at 36.5 million. That’s over two months’ time roughly the total amount of claims registered in the aftermath of the financial crisis. Data suggest that the US unemployment rate will rise further in May after setting a post-depression high (>14%) in April. Markets generally didn’t react to the print. The dollar remained in good shape on the FX market The trade-weighted greenback approach 100.50, its strongest level since the end of April. Important resistance stands around 101. EUR/USD changes hands sub 1.08 and is lured by the 1.0727/1.0778 support zone. USD/JPY is pinned to the 107-mark. Core bonds profited only marginally. The US yield curve flattens with daily yield changes ranging between +0.5 bps (2-yr) and -4.5 bps (30-yr). The US 10-yr yield is sliding back towards the 0.54% support area (currently 0.62%). The German yield curve trades virtually unchanged today. 10-yr yield spread changes vs Germany widened marginally with Greece (-4 bps) outperforming and Portugal (+5 bps) underperforming. Oil prices continue to hover around $30/barrel, slightly rising after the International Energy Agency said that outlook for global oil markets improved somewhat.
News Headlines
According to an executive at China’s state owned agriculture trading house, COFSCO, China will speed up purchases of US farm goods as it implements the Phase 1 trade deal it signed with US earlier this year. China committed to buy additional US agriculture products for an amount of $32 bln over two years.
According to the FT, the UK Department for international trade is preparing ‘a big concession package’ to reduce the cost of some US agricultural products in an attempt to speed up a trade deal with the US. However, the initiative sparks concerns with the government. A government spokesman already said that that the deal must work for the whole of the UK, including farmers, consumer and companies and that the UK will not compromise on high environmental protection, animal welfare and food standards. The UK government hopes that (the prospect of) a trade deal with the US, might give it some leverage in its negotiations with the EU.
According to the UK Office for Budget Responsibility, the UK 2021/21 budget deficit could rise to £298.4 bn, being 15.2% of GDP. At a previous estimate, the OBR saw the deficit at £273 bln. The figure includes an estimated cost of £123.2 bn for government spending and tax decisions to support the economy. In addition, the deficit is likely even be higher as the OBR said it isn’t able yet to assess the impact of the new Job Retention Scheme that will run from August till October. EUR/GBP tests 0.8863 resistance.
