Markets enjoyed an impressive risk rally over the previous week. The hope on a post-corona restart of the economy and massive support from monetary and fiscal authorities worldwide outweighed several pockets of uncertainty, including persistent political tensions and tensions on trade between the US and China and social and political unrest in the US. Late last week and this week, the global risk rally finally also triggered important technical breaks in several key currency cross rates while the impact on core bonds remained rather modest. This pattern changed slightly today. The risk/equity rally simply continues. European equities on average gain abound 2-2.5%. US indices open about 0.5% higher. The eco data today were less worse than expected. Final EMU PMI’s were upwardly revised. The EMU April unemployment rate rose ‘only’ from 7.1% to 7.3% and private sector employment as measured by ADP in May declined by 2.76 mln while a loss of 9 mln jobless was expected. The data evidently didn’t hamper the risk rally but de facto still had only limited direct impact. The risk rally also causes some further bear steepening of the core yield curves. US yields rise between 2bp (2-y) and 5.2 bp (30-y). The move accelerated slightly after the ADP report. US yields on maturities up to 10-year still hold with the ST established ranges. The 30-yr extends its break beyond the 1.5% resistance area (1.54%). The German yields curve shows a similar pattern with yields rising between 1.8 bp and 4.5 bp (30-year). So, the yield market is gradually trading a bit more in line with the overall market rally, compared to the early stages of the risk rebound. The trend of intra-EMU spread narrowing gradually peters out. The Greek 10-y yields spread versus Germany still declined another 4 bp but Italy widened 3 bp. However, the Italian bonds remain well bid. At a new 10-y syndicated bond sale, Italy sold €14 bln worth of bonds at BTP + 9 bp. However, investor demand for the bond was reported at an impressive € 108 bln.

The latest risk rebound caused a big reposition out of the US dollar. The trend remains intact, but the pace of the USD decline showed tentative signs of slowing during today’s session. EUR/USD is holding north of 1.12 but currently makes no further progress. USD/JPY (currently 108.65 area) is holding a sideways intraday trading pattern after yesterday’s break higher. So, the yen doesn’t decline further despite the continuation of the risk rally. EUR/JPY temporarily tested the 122 level, but also takes a breather after yesterday’s impressive jump. Some calm also return to sterling trading. EUR/GBP continued yesterday’s ST bottoming pattern and hovers in the low 0.89 area. In a remarkable statement, the BoE warned UK lenders that they should prepare for a no deal Brexit scenario. The Bank said that the EU and the UK not reaching a deal before the end of the transition period is ‘one of a number of outcomes that UK banks need to prepare for’.

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OPEC+ probably won’t hold an early meeting tomorrow. Saudi Arabia and Russia want to stick to production cuts for at least another month before tapering from July. Next week’s official gathering is also in doubt unless all nations first agree to cut output by as much as they promised, according to sources. Cheats include countries like Iraq and Nigeria. Brent crude briefly surpassed the $40/barrel mark this morning before retreating on the OPEC+ struggles.

The euro zone unemployment rate ticked up from7.1% in March to 7.3% in April, defying forecasts of a much bigger rise to 8.2%. The figure marks a stark contrast with the US April number (14.7%) with European social safety nets proving their worth, at least in the short run. The longer the economic despair lasts, the larger the probability of higher unemployment data in the coming months.


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