Market movers today
In terms of economic data releases, today is rather thin. The highlight is the German industrial production for April, which is likely to be dire reading. However, leading indicators are starting to point towards signs of relief for the euro area as mentioned in Euro Area Macro Monitor: Spring is in the air, 5 June.
We also get Danish industrial production figures, which will be interesting because the manufacturing sector has fared quite well until now. Preliminary figures indicate we are in for a dip in April, though.
In general, we will be looking out for updates on the virus numbers as also Southern Europe is opening larger parts of the service sector. This morning New Zealand reported that it will end social distancing measures as it reported zero active cases.
This week could also bring news on the Brexit front as the 1 July deadline for a potential extension of the transition period is drawing nearer, while the FOMC meeting ending on Wednesday will see markets look for any guidance on existing measures.
Selected market news
Details regarding EU’s recovery fund continue to emerge from the ongoing negotiations. Diplomats during the weekend said that some view the commission’s proposal for the distribution of funds as outdated and not targeting the countries hardest hit by the virus. The allocation key will be based on, among other variables, GDP (per capita) and average unemployment rates from 2015 to 2019 resulting in, for example, Belgium, having been hit rather hard by the virus, receiving one of the lowest amounts of aid from the fund, whereas Poland, whose economy is set to be the least affected, will be one of the big winners. Even so there were also positive tones with an EU official telling Financial Times that a deal could be finalised by August.
Oil sees further gains this morning (up 1%) following the OPEC+ decision during the weekend to extend the almost 10m bbl/day cuts to supply by one month so that they now last until the end of July. If not agreed upon the cuts could be tapered starting the end of this month, bringing instability back to the oil market. The July contract for West Texas Intermediate has risen more than 100% since late April, when the cuts to supply were first agreed upon, and is currently trading at USD 40/bbl with Brent showing similar gains. Despite the apparent stabilisation officials argue that an extension also covering August could be required, bringing the need for more negotiations during the summer, and furthermore there have been clear issues with full compliance from not least Iraq having over-produced during May.
Loan loss charges at US banks reached 10-year highs in Q1 following the expectation that a large share of customers and small business owners would not be able to service their debt following the lockdowns imposed during March. Now, one month later, the outlook is less bleak, as, according to Financial Times, Bank of America, US Bank and Wells Fargo say that between 25 and 40% of those granted forbearance have continued to follow the initial loan payment schedule.
