Market movers today
In Germany, the ZEW indicator for economic sentiment for June is released. According to ZEW, the euro economy has already moved into upswing quadrant, but we will look out for whether the rise in expectations of the last two months continues and whether the current situation assessment follows suit.
In the US, retail sales for May are due out and after two months with big declines, we expect a strong increase although sales are to remain below the pre-coronavirus level. We base this forecast on the daily transaction card spending, which continues to improve.
Fed chairman Jerome Powell is scheduled to deliver his semi-annual policy report today and tomorrow to the US Congress. He is expected to echo the downbeat view he gave on 10 June, when the Fed signalled rates would stay near zero through 2022.
Market focus will also be on rumours that the Trump administration is preparing a USD1 trillion infrastructure proposal as part of a push to spur the US economy.
In Poland, the central bank is scheduled to announce its rate decision. We expect rates to remain unchanged after the central bank reduced its benchmark rate on 28 May.
Selected market news
Yesterday, the EU and the UK confirmed the UK’s decision not to request an extension of the transition period. That means pressure is growing to make a trade deal by October so it can be ratified before the New Year. The parties agreed to speed up talks in July.
In the US, the Empire PMI manufacturing rose to -0.2 from -48.5, another sign that we have reached the bottom in the US economy following COVID-19. This suggests ISM at exactly 50, i.e. unchanged activity from April to May. In other words, the activity level is still very subdued, but is no longer declining.
At a meeting ending this morning, the Bank of Japan (BoJ) kept its QQE with yield curve control policy unchanged as widely expected. There were no major changes to its programmes to ease corporate funding strains either. BoJ has already scaled its purchasing limits up significantly and this meeting was probably more dedicated to evaluating the measures already taken.
Following a few rough days where a potential second wave of coronavirus spooked markets, equities are up again today on the back of an announcement by the Fed that it will activate one of its several emergency facilities and start purchasing corporate bonds today. MSCI’s broadest index of Asia-Pacific shares outside Japan is up 2.2% this morning and Nikkei is set for its biggest daily gain in two months. US stock futures are also up following a late rally on Wall Street on Monday and 10-year US treasuries edged up towards 0.75%. Meanwhile in Beijing, high-risk people are banned from leaving the city and some transportation services have been halted to stop the spread of the new coronavirus outbreak early and prevent it from reaching other parts of the country.
