Markets
Trading on global markets started with some kind of ‘the day after’ feeling after yesterday’s carnage on almost all markets of risky/less liquid assets. Was there further damage to come or was it a one-off strike? Eco data were few and mostly second tier and weren’t able to provide much directional guidance. Markets in Asia and Europe this morning still opened lower, but it soon became clear that the momentum was far less negative than in the US yesterday evening, probably as the risk of a new wave of corona infections is considered to be less in those area’s compared to the US/the Americas, at least at current juncture. European equities still opened with a loss of about 1%, but soon took the path north again. The jury is still out, but for now, it looks that supportive monetary conditions still have some power the shelter markets for feared for further negative developments in the corona sage. April EMU industrial production declined 17.1 % M/M in April, slightly less than expected, but the report evidently brought little new info for markets. European equities currently show gains of mostly slightly more than 1.0%. US markets open with a gain of 2%. US and European bonds today show a slightly divergent picture. European yields don’t recover from yesterday’s downturn. The German yields decline an additional 1.5 bp across the curve. US Treasuries are trading a bit more in line with the cautious rebound on equity markets. The US yields curve bear steepens with yields changes varying from unchanged (2-y) to +6 bp (30-year). Intra-EMU spreads versus Germany, resuming a cautious narrowing trend after only modest losses during the risk-off earlier this week. The 10-y Italian spreads versus Germany declined 4 bp.
Trading in the major currency cross rates showed no clear pattern. The trade-weighted dollar (DXY) hovers in the upper half of the 96 big figure, basically maintaining yesterday’s gain. The yen is losing most ground after recent safe haven gains. USD/JPY is trading in the 107.30/40 area. The performance of EUR/USD is disappointing. It tried to capitalize in the equity rebound this morning, but the move had no strong momentum. The pair currently gain struggles not to fall below the 1.13 level. According to ONS data, UK GDP decline in April by 20.4 % M/M. Production data showed a similar sharp setback. The data confirm other evidence that the UK economy is hit hard by the fall-out from the coronacrisis also compared to other (European) countries. Even so, the data had no significant impact on sterling. Sterling this morning even profited slightly from the overall risk rebound. EUR/GBP tested the 0.8950 area but current trades again in the 0.8980 area. Next week EU and UK politicians will again try to unlock the stalemate in the UK Brexit talks.
News Headlines
The Finnish parliament’s constitutional committee questions the legal ground of the EC’s €750 bn recovery proposal, saying it might not be fully compliant with EU law. The Finnish government voiced doubts over the proposal already last week. The committee’s view is considered binding in the Finnish parliament. The EC proposal needs to be unanimously approved by all member states for it to be adopted.
A draft of the EC’s policy paper on subsidized foreign takeovers seen by Bloomberg revealed the Commission will suggest imposing fines, restrict investments and ban acquisitions of European companies by foreign enterprises. The subsidy threshold at which the measures will be taken lies at € 200 000 over a period of 3 years for foreign takeovers worth € 100 mln. The paper is to be unveiled next week.
