Market movers today

In terms of economic data releases, today is rather thin. The highlight is the German IFO survey due out at 10:00 CEST. We have seen a small rebound in some surveys and that might very well be true for the IFO expectations index, albeit still far away from signalling a fast V-shaped recovery (which is not our base case either).

We also get the German Q1 GDP details, which, however, is old news relative to what markets are focusing on right now.

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More and more countries continue to re-open the economy as the coronavirus slows. Unfortunately, things are not looking bright in emerging market countries like Brazil, India and Mexico. Protests are increasing in Hong Kong after China’s decision to impose its national security law on the city, which makes it illegal to undermine the Chinese government.

It is a market holiday in the US and the UK as well as in several Asian countries. Hence market activity is expected to be modest.

Selected market news

The tensions between US and China continue to rise as the Chinese foreign minister urged the US to drop ‘wishful’ thinking of changing China and warned that some forces in the US were pushing the two countries towards a new ‘cold war’. The Chinese foreign minister stated that the US should not cross Beijing’s ‘red line’ regarding Taiwan. Furthermore, the renewed protests in Hong Kong are likely to add to the already negative sentiment between the US and China.

Hence, the sentiment in Asian equity markets this morning has been mixed: Hong Kong shares continue to slide, while markets in Japan, Australia and Korea are up. However, several Asian markets are closed today.

The Federal Reserve is expected to begin lending money to small and medium-sized companies (SME) according to comments on Sunday from Fed Governor Rosengreen. The size of the programme is USD600bn and targets the SME sector. Furthermore, when asked about the labour market, Rosengreen stated that there was a significant risk that unemployment would remain at double-digit levels through 2020 and monetary and fiscal support had to continue to avoid a more severe outcome in the US labour market.

In Europe the debate regarding the joint proposal from France and German regarding a EUR500bn recovery fund is expected to continue this week. Currently, the ‘frugal four’, Austria, Denmark, the Netherlands and Sweden, are against the proposal. However, the response from the frugal four has had limited impact on the market as the 10Y spread between Italy and Germany is slowly trending towards 200bp after having been at 240bp in mid-May.

The oil price continues to very slowly trend higher. It closed at USD33.5 on Friday and this morning it is trading at USD33.6. The S&P 500 ended the week with a weekly gain of 3%, while 10Y Treasury yields are more or less unchanged.

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