Market movers today
Today we will look towards the PMIs as notably PMIs in the US, UK and the euro area will be released. In the US, we expect the indices to rise to around 50 (or perhaps slightly higher) and similarly in the euro area. High frequency data and some of the sentiment indicators we already have for June at least point to a strengthening of the recovery signal in the euro area. Last month the euro area PMIs told us that the trough is behind us and the bleeding has stopped, but to talk of a ‘real’ recovery taking shape in Europe, we need to see these PMIs move back into expansion territory.
Equity markets stabilised yesterday, but given the recent rise in US virus numbers we will continue to look out for any news regarding continued spreading in especially the populous states Florida, Texas and California that all reported record high one-day increases during the weekend.
Selected market news
US president Donald Trump yesterday extended the current temporary suspension of immigration on the back of the coronavirus pandemic including new measures such as restricting entry for high-skilled labour and seasonal workers, by signing an executive order (new green card applications was ordered banned in April for a 60-day period, which has now been extended). The measures are expected to be in place for at least the rest of the year. Business leaders have not surprisingly expressed their opposition to a broadening of restrictions and have warned that any such move could have long-lasting consequences for US tech companies competing with the rest of the world for engineering talent. The US issued 900,000 visas in 2019 in the categories now restricted. Trump is currently facing an uphill battle to remain in office for another term as he trails 9.5%-point to Joe Biden in recent polls.
Nasdaq Composite closed at a new all-time high on Monday after ending the day up 1%. This underlines that global demand for US tech is still very much intact, even after the recent three-month rally, and is a counterweight to the otherwise weakening picture of the USD during the past month. After US close, however, both equity futures (S&P: -1%) and treasury yields (-3bp) fell rapidly but increased just as quickly again one hour later as Peter Navarro, economic adviser to the President, was quoted saying to Fox News that the Phase I trade deal signed with China in January is ‘over’. Shortly afterwards, however, Trump went to twitter saying that: ‘The China Trade Deal is fully intact. Hopefully they will continue to live up to the terms of the Agreement!’ and Peter Navarro later claimed that the quote was ‘taken wildly out of context’.
The Spanish government is expected to add EUR50bn to its current EUR100bn government guarantee fund as EUR54bn guaranteed loans (out of a total EUR 70bn of new lending) have already been deployed so far by banks since the guarantee scheme was set up on 17 March. The amount of new bank lending depending on guarantees is much higher than in the rest of Europe and the government will cover up to 80% of the losses incurred on the back of a potential default. The fund has so far been increased in EUR20bn increments, but the large increase now put forward clearly shows that the recent lockdown, which was among the world’s strictest, has had sizeable consequences.
