Markets
Markets started the week with some ‘by default bullishness ’. There was little news. Even so, investors looked forward to events later this week that might support the case of a solid recovery, helped by a dose from fiscal and monetary authorities. That optimism is still challenged by the coronavirus is spreading further/reviving in several parts of the world. The start of the US earnings season, several (mainly US) data series, policy meetings of the likes of the BOJ and the ECB and an EU summit should all help markets to make up their mind whether/to what extent current optimism is justified. European equities at the open joined Asian risk rally with good gains of about 1%+ but the move lacked conviction with indices struggling not to give up the initial gain. This rather lackluster trading pattern was also visible in bond and FX markets. However, markets overcame the early weakness in the run-up to the open of US markets. Pfizer and Biontech receiving fast track permission from the US FDA for two potential vaccines again helped equity sentiment in a somewhat of a similar reaction as did the headlines on Gilead’s Remdesivir on Friday. European equity indices are show gains of 1-1.3%. US markets opened 1% higher. On bond markets, German yields did some catching up with the rebound/steeping of US yields curve late on Friday. German yields are rising between 2.5 bps (2-y) and 6 bps (30-y). Technical factors were also in play. The German 10-y yield on Friday tested the key -0.49%/0.50% support area, but a break didn’t occur, probably triggering some mild profit taking on recent bund rally. 10-y yields spread changes versus Germany mostly show a modest narrowing met Greece (-3 bps) and Italy (-2bps) outperforming. European bond markets apparently at least see this week’s EU summit making ‘decisive’ progress on the way to an EU rescue package with a substantial part of risk sharing regarding the funding of the program. Moves in the US yields curve stay more muted. Still, the US yields cautiously resumes its steepening trend after recent bull flattening. US yields a rising between 0.5 bp (2-y) and 2.5bp (30-y yield).
The trade-weighted dollar (DXY) shows no clear trading pattern holding in the mid 96 area. However, the broader picture still shows some underlying USD softness as sentiment on risk remains constructive. Contrary to what was the case on Friday, USD/JPY this time decouples from any risk-on driven USD weakness. USD/JPY (but also EUR/JPY ) apparently profit (yen weakness) from the rise in core (US & EMU yields) and the continuation of the equity rebound today (recall Japanese equities also were an outperformer this morning). In line with European equities, the EUR/USD performance was a bit hesitant this morning, but the 1.13 area provided an intraday floor. The pair currently again nears the 1.1350/71 resistance area. Sterling on the other hand, again decoupled for the ‘logical’ trends. Recently, the UK currency outperformed despite mixed UK news and a more cautious global risk sentiment. Today, EUR/GBP took the way north again even as sentiment improved. Starting tomorrow, this week’s UK data will give an update on the UK economy at the peak of the coronacrisis (mostly May data). EUR/GBP is again nearing the 0.90 pivot currently 0.8985 area).
News Headlines
Russian central bank governor Nabiullina said today there was room for another rate cut following the latest inflation data that had come in. The Russian central bank’s inflation target stands at 4%. The June reading amounted to 3.2% y/y (core inflation 2.9% y/y). At the last meeting, the central bank slashed rates to a historical low of 4.5%, citing waning inflationary risks and a shrinking economy. The Russian ruble trades steady at 80.3 to the euro.
Germany’s Health Minister Spahn warned the danger for a second wave of the coronavirus is real. His comments came after having seen a mass of German tourists ignoring social distancing rules on beaches in Spain. While Germany was able to keep the number of new daily cases fairly limited, the infection rate rose above the key threshold of 1 yesterday for the first time in 3 weeks.
