Market movers today
Focus this week will remain on the reopening of economies in the US and Europe and how it affects the development in the virus numbers. We will also monitor the increasing tensions between the US and China. There are no big market movers today, but later this week we will look out for PMIs from the big economies. The EU Commission’s proposal on the EU budget and recovery fund will also draw our attention and we will get both FOMC and ECB minutes as well.
Selected market news
The US-China tensions continued to rise on Friday and over the weekend. Over the weekend, White House trade adviser Peter Navarro, a long-time China hawk, accused China of hiding the virus and ‘then sent hundreds of thousands of Chinese on aircraft to Milan, New York and around the world to seed that’. Also over the weekend, China said that it will take ‘all necessary measures’ to protect Huawei after the Trump administration announced new restrictions on Huawei on Friday. This is a clear indication that, despite the US-China phase-1 trade deal, the tech war between the two countries is far from over, which only adds to the already high degree of uncertainty in the world economy.
On Friday, the third round of trade negotiations between the UK and the EU27 concluded and it seems like the negotiations are on the brink of breaking down ahead of the important decisions on a possible extension of the transition period, fishery and financial services before 1 July. We continue to expect no extension despite COVID-19. The next round of negotiations is set to begin on 1 June.
Ahead of Fed Chair Jerome Powell’s hearing tomorrow, he said in an interview yesterday that we should see ‘the (US) economy recover steadily through the second half of this year’ assuming there is no second wave, although ‘it may take a while’. He also said that a full recovery may not happen until we have a vaccine. At this week’s hearings we expect Powell to re-state that while one should not rule out negative policy rates in the US, it is still on the last page of the Fed’s playbook. Expanding the lending facilities, stronger forward guidance and possible yield curve control come before negative rates.
We also want to highlight our bi-weekly Danish spending monitor. Danish spending data up to and including 14 May show clear signs that spending is recovering, as more of the economy opens up. Total card spending has more or less returned to normal levels (groceries are still down by around 5-10%, which is still an improvement, however). If we see similar patterns in other countries, it supports our cautious optimistic outlook for the world economy, although, unfortunately, many things can still go wrong.
