Market movers today

This week’s key events are the ECB meeting on Thursday and the EU council meeting on Friday/ Saturday. We do not expect much progress this weekend from the latter.

Earnings season kicks off this week with US banks reporting.

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Selected market news

Overnight, equity markets are up with futures showing +0.5%-1% and EUR/USD hitting 1.1323. We expect a broad USD decline to continue, supporting EM FX (despite local coronavirus issues) and see EUR/USD at 1.15 in 3M. This continues to be a recurring observation, with markets not being weighed down by the current host of problems with coronavirus in EM and some US states, not least the likely still-weak current earnings. Thus, market’s focus is the direction rather than the level of economic activity, being supported by fiscal and monetary policy.

On Sunday, both candidates in the Polish presidential election declared victory as the margin of error in exit polls was well within allowing such. The election is held between current president A. Duda and opposition candidate R. Trzaskowski. If Duda wins another term, we expect little or no change in either economic policies or relations with the EU. Over time, Trzaskowski may be able to seed a more conciliatory line towards the EU, although for EUR/PLN spot, the current Eurosceptic politics have not been persistent in driving moves, in our view. The final result is expected to be announced either late Monday or Tuesday.

Rouble has started again to move more in tandem with global risk mood rather than trading possible sanctions. Spot took a small hit on the news that the Dutch government said it would file a suit against Russia at the European Court of Human Rights over the downing of Malaysia Airlines passenger flight MH17 over eastern Ukraine six years ago. Nevertheless, the move was faded away quickly.

South Africa is scaling up precautions as coronavirus continues to be a major issue. Alcohol sales are now banned, masks are required and enforced and a curfew from 9pm to 4am will be put in place, according to Bloomberg. US states also continue to have issues with primarily Florida as the hot spot, reporting 15,000 cases in the recent batch.

Friday night’s rating event from Fitch confirmed Italy’s BBB- rating (stable outlook). Fitch clearly indicated that ECB’s PEPP is a key driver for the low financing costs and as such also a backstop for the fiscal position. Fitch cites a failure to stabilise the public debt to GDP ratio, failure to implement credible growth strategy and a severe deterioration in the relationship with the EU as potential drivers for a downgrade. We expect Italy to be slightly positive from the opening.

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