Market movers today
The week is off to a slow start with only the EC consumer confidence today. Focus turns to the US and Euro area PMIs tomorrow, which will give an indication of the economic recovery – although caveats are to be highlighted with the indicators.
Later this week, ECB minutes and US personal consumption on Thursday will be released.
On an ongoing basis, the potential of a resurgence in COVID-19 cases will be watched, notably in some of the hardest hit countries, such as the UK and the southern and western parts of the US.
Selected market news
Equity markets opened mixed this morning with Nikkei slightly in green (+0.2%) and Hang Seng down -0.3%, as the number of new COVID-19 infections has been on a positive trend the past days in the US. The number of new cases was 32,000 on Sunday as compared to around 20,000 one week ago and the amount of new infections has in general been fairly stable for the past month (the highest day count of new infections is 37,000 in the US). The amount of testing done can explain partly why the new infection number has stabilised at a high level, but with the share of positives also rising this is indeed worrisome. Apple said on Friday that it would temporarily close stores in US states that had seen a rise in infections, including Arizona and Florida.
The Italian government is drawing up plans to increase infrastructure investments and lowering VAT in an effort to kick-start the economy on the back of the COVID-19 induced hit to the Italian economy, Prime Minister Giuseppe Conte said on Sunday after an eighth day of closed-door meetings with ministers and business leaders. The government is expected to present a reform plan in September. Bank of Italy expects Italian GDP to fall 9% this year only to grow gradually in 2021 and 2022 at around 2-5%, meaning that GDP at the end of 2022 is expected only to be some 2% above the level 20 years ago. Italy’s obvious problem, however, is a high government debt load at 150% of GDP, but Conte is lobbying for a high share of grants in the ‘Next Generation EU’ reform package and reportedly said in the video call among EU leaders on the subject on Friday that an accord must ‘absolutely’ be reached in July. Italy’s parliament has already approved spending packages worth EUR75bn and it is expected that Conte will ask for another EUR10bn during the summer.
As consumption levels and everyday life starts to return in most European countries, governments are discussing how to phase out the implemented support schemes subsidising 45m jobs across Germany, France, Britain and Spain (FT.com). Most governments have chosen to extend the programmes into the autumn, but there are other costs to that than just the short-run effects on government finances, as a significant part of the subsidy schemes cover sectors that are expected to be under water for more than short a year or two, such as for example tourism. The fear is that a long period of support will create ‘zombie jobs’, which is damaging to the economy in the long run, but short-run social consequences of cutting support could become unbearable for politicians across the continent.
