Markets took a guarded but overall still constructive start to the new trading week. European equities opened slightly lower after Friday’s stellar gain. However, equities are still captured in a buy-on-dips pattern and quite easily reversed the initial loss. There were no important data in the US today and European data were mostly second tier. German industrial production dropped a steeper-than-expected 17.9% M/M in April but this evidently didn’t change investors’ view on the future path of the economic rebound. Oil initially rebounded further after the weekend’s OPEC+ agreement on further production cuts, but the rebound stalled intraday. US equity futures extend their rally and opened with gains of 0.25%-0.75% , the Nasdaq underperforming. On interest rate markets, Bunds outperform Treasuries. The German yields curve showed a (corrective) bull flattening with yields declining between 1 bp (2-y) and 4 bps (30-y). Intra-EMU spreads show signs of stabilization after last week’s rally. The ECB’s commitment to use the PEPP in a flexible matter to guarantee a smooth implementation of policy accommodation across the euro area is apparently discounted after recent sharp narrowing. The Greek 10-y spread widens 9 bp. Contrary to European interest markets, US bond yields stay close to Friday’s closing levels and show little of a corrective decline, with the very long end of the curve still underperforming. US yields vary from little changed (5-y) to +1.5 bp (30y). This week, the US Treasury this week will sell 3-year (today), 10-year (tomorrow) and 30-year bunds (Thursday). Some uncertainty on the acceptance of this supply might explain the UST underperformance. Markets also look forward to Wednesday’s Fed policy decision and press conference (including new Fed economic forecasts). Usually, the Fed tries to avoid market nervousness especially in a context of extreme uncertainty and this is still where we are. Even so, it will be interesting to seen how the Fed will assess current accommodative market conditions (quid asset market rally?).

On the FX markets, the ‘traded-weighted dollar’ (DXY 96.85 area) still traded with a slight negative bias. However, contrary to what was the case of late, EUR/USD this time wasn’t the major contributor. EUR/USD hovered in a tight slideways range around the 1.13 big figure. USD/JPY underperforms even as global sentiment remains constructive. USD/JPY is trading in the high 108 area compared to a peak of 109.85 post payrolls on Friday. Sterling initially remained well bid this morning, with EUR/GBP testing the 0.8885 area. However, the decline soon petered out. The UK holding to its quarantine for international arrivals isn’t that important for markets, but only illustrates that the UK probably won’t be a frontrunner in the easing of the measures to control to coronavirus. EUR/GBP currently trades in the 0.8910 area.

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News Headlines

The Bank of Spain updated its economic forecasts, now projecting a 21.8% q/q slump in the second quarter of this year. The economy would recover in the second part of the year, taking the yearly growth figure to an -11.6%, slightly better than the -12.4% earlier put forward. In a similar exercise, the Dutch central bank expects the economy to shrink -6.4% y/y in a base case scenario before resuming growth in 2021 and 2022 at 2.9% and 2.4% respectively..

Italy will issue the BTP Futura, the first 100% retail government bond, designed for the “future of the country”. The bond will be offered to retail investors only from July 6 to July 10 and will have a duration between 8 and 10 years. The proceeds of the domestic inflation linked BTP Futura will be used to support the economy’s post-coronavirus recovery.


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