Market movers today
The main event today is UK PM Boris Johnson meeting European Commission President Ursula von der Leyen and European Council President Charles Michel to discuss the way forward in Brexit negotiations ahead of the 1 July deadline. We are sceptical that the two sides will find a breakthrough in the deadlocked negotiations especially on a possible extension of the transition period, which expires at the end of the year. This extension needs to be agreed upon before 1 July if the two sides should be able to extend the transition period at a later stage in the fall.
Later today, watch out for the Empire Manufacturing PMI for June, which will give the first reading of manufacturing activity for the US economy this month.
Early tomorrow morning Bank of Japan will release its decision. We do not expect much action at its policy meeting on Tuesday. Bank of Japan has already scaled its purchasing limits up significantly and this week the government submitted a second supplementary budget to parliament to support small firms and help the economy back on its feet.
This week a host of Fed speakers will shed light on how they expect the US economy to evolve – watch out for Mr. Powell’s speech on Friday. In Europe, Bank of England meets on Thursday and EU Heads of States will discuss the EU recovery fund on Friday.
Selected market news
With the virus scare as of last week (US major indices down 5-7% on Thursday), we are opening up the week on the back footing as well. Overnight, US equity futures are down some 1-1.5% and commodity currencies such as the Australian dollar and NOK are down some 0.5%, thus continuing the downward trend as of last week. Similar moves are seen in commodity prices.
Several US states continue to report a pick-up in coronavirus cases and this is likely the main reason why markets are opening this week with heightened risk aversion. 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. Nonetheless, there are also reports of China seeing a new (but still small) outbreak in Beijing.
Indeed, if this driver continues to be at the forefront of markets’ attention, we may likely see further retracement of the recent month’s positive risk sentiment and e.g. a stronger broad USD. EUR/USD will likely head lower as well with SEK and NOK also challenged by this.
Chinese activity data showed a continued but slow recovery in May. Though a recovery remains in progress and monetary support is well in place, the actual spending, production and investment data continue to come in at what is historically quite weak growth rates, although the direction continues to support an ongoing recovery.
