Market movers today
The key thing today is to reflect further on the large market retracement from Thursday.
Today, we get industrial production figures from the euro area and monthly GDP estimate from the UK for April. We expect large drops in both.
In the US, June consumer confidence is likely to rebound on the back of the reopening.
We also get the ECB TLTRO repayment data ahead of next week’s TLTRO allotment (at 12:05 CEST). This is the first leg in what will set the tone for euro excess liquidity.
Early Monday morning next week, Chinese industrial production and retail sales for May tick in. We look for a further moderate rise in industrial production but the development in retail sales is probably more interesting as demand growth will determine how fast China recovers.
Selected market news
On the day after the Fed meeting, markets soured. Starting with the European session, DAX, banks and energy-equities sold off around 2-5%, while commodity currencies were offered in favour of the dollar, qua its safe-haven status. By day-end, the US Dow Jones ended -7%, S&P500 -6% and NASDAQ -5%. European futures’ prices show an on-par, or worse experience. The selling was heavy in the recovering sectors such as airlines, hotels, energy and banks and intensified over the full day. In the past few days, we have seen some tapering of May/June’s strong upwards momentum in stock prices but yesterday’s moves question the general market story of recovery without bumps and will be an evolving focus point in the week(s) to come.
Among competing explanations for the sell-off, one candidate is the US coronaviruspicture. While the overall level of new infections is moving sideways it hides big differences across states. Several states have seen a rise in new infections lately, which may be due to the protests but could also be related to the general opening up. The three most populous states, California, Texas and Florida, all struggle with high levels of new infections and Texas and Florida have seen a renewed increase lately. Declining levels of new cases in 25 states though, leaving the country-wide level broadly flat. This may be spooking the markets as to getting the virus under control and seeing a continued normalisation, including a ramp-up in spending. In our view, the bar for turning to lockdowns again seems very high, though. Not least in the US, where there is strong opposition to this.
The poor risk sentiment also sent EUR/GBP back above 0.90 yesterday. GBP remains exposed to the global risk picture (in both directions). At the same time, the Brexit news flow does not look encouraging, as the UK and the EU still seem far away from each other. Financial Times reported yesterday that the high level summit between UK PM Boris Johnson, European Commission President Ursula von der Leyen and European Council President Charles Michel is set to take place on 15 June.
