Market movers today
On paper today’s highlight will be the Fed meeting . After an abundance of policy measures announced since March, we expect today’s meeting to be relatively quiet with no major policy announcements even if we cannot rule out another ‘technical adjustment’ of the interest on excess reserves (IOER). Also, we will keep an eye on the Fed’s discussion of the economic outlook and market conditions as well as any possible tweaks to the Fed’s existing credit facilities.
US Q1 GDP figures released today will give a first glimpse of the pandemic’s impact on economic growth. We expect GDP to have contracted by around 4% q/q AR, the first decline in six years.
In Europe, German inflation figures for April will give some flavour of the disinflationary forces that have taken hold in the euro area with the coinciding collapse of oil prices and consumer demand. The latter will likely also be reflected in another dreadful reading of the Commission’s economic sentiment indicator for April.
In Norway, the results of a telephone survey of Norges Bank’s regional network will be released, while in Sweden NIER publishes a new forecast update. In Denmark we look forward to the business confidence survey for April (see next page).
Selected market news
It has been fairly quiet overnight. With limited news Asian indices and US equity futures are trading modestly in green this morning. Front-end contracts in the oil market – especially WTI – have rebounded sharply this morning. This follows sessions where market participants have moved out of the June contract on fears of storage limits and risk of negative front-end US oil prices also in May.
Last night, Fitch made an off-schedule rating announcement and downgraded Italy to BBB- (one notch downgrade), citing the rising debt levels in Italy as the driver. Fitch has been the hardliner of the three major rating agencies, also downgrading the UK earlier this month. Italy’s outlook remains stable, citing ECB responses as the key reason. As a result, BTPs are expected to trade weaker this morning, ahead of the BTP supply today.
Yesterday, ECB published its quarterly bank lending survey (conducted 19 March to 3 April), which showed a surge in credit demand and tightening of credit standards, albeit they remained contained and much smaller than during the financial crisis. The surge in loans and credit lines is unsurprising given the strain COVID-19 has put on firms’ liquidity situation. Looking ahead, the ECB’s TLTROs should address this but with yesterday’s data we now see a risk that our initial EUR650 forecast for the June TLTRO is too low. Also, more generally we think it is too early to rule out more ECB easing.
Yesterday the Riksbank left monetary policy unchanged. The Riksbank did not provide a new baseline forecast but rather two scenarios both in which the starting point is monetary policy adapting to circumstances, including all instruments, such as scaling up various balance sheet related measures and cutting the repo rate.
