Market movers today
We expect Norges Bank to stay on hold at 0.0% today but to revise its projections upwards and indicate a gradual rise in the policy rates from the end of 2022 (see page 2 for more details).
We expect the Bank of England to keep its bank rate at 0.1% despite ongoing discussions of negative rates. Instead of a rate cut, we expect the Bank of England to expand its QE programme by another GBP100bn (the QE programme still remains small in scale compared to peers).
We get the results of ECB’s TLTRO3.4 liquidity operation at 11:30 CEST. Markets will pay more attention to this number than usual, as this operation is integral to the ECB’s crisis response to COVID-19. We expect a gross take-up of around EUR1.5trn next week, corresponding to a net take-up of around EUR725bn. See more in ECB Research: Flooding euro markets with TLTRO liquidity. Implications for excess liquidity, tiering and markets, 12 June.
In the US, unemployment claims have been attracting a lot of attention in the beginning of the coronavirus lockdown, but markets will probably not put too much weight on them, as they were not good at predicting the employment rebound in May.
In addition, the virus developments in major US states such as Texas and Florida as well as China and Brazil continue to be a key market focus.
Selected market news
The New Zealand and Australian economies are hard hit by the COVID-19 crisis. In New Zealand the economy contracted 1.6% q/q and 0.2% y/y. It was the first decrease in GDP since 2010. In Australia, labour market conditions deteriorated significantly in May. Employment dropped 228,000 and unemployment rose to 7.1% from 6.2%.
Japan looks to enter its next phase of reopening the economy on Friday, which is set to include the removal of all domestic travel restrictions along with a resumption of events, e.g. sporting events, and nightlife activities.
Euro area banks are heavily scaling back their use of the central bank USD liquidity swap facility. The past two weeks USD103bn of 3M swaps have matured, but only USD4bn have been extended. It is a sign that funding conditions have vastly improved and that other Fed operations have now replaced the need for accessing USD funding on the central bank’s swap facility.
In US, the home-purchase loan applications index has rebounded swiftly and has risen to the highest level since 2009. There is likely a great deal of catching up in property market activity after the period of lockdown. Nevertheless, the market took the news as another US data point that surprised positively.
