Market movers today
The much awaited EU leaders meeting will start today at 10:00 CEST. The revised EC proposal put on the table is broadly similar to the proposal tabled in late May with the important exception of the distribution of 30% of the Recovery and Resilience Facility only being set in 2022. The grants versus loans discussion, distribution key as well as the overall size of the recovery fund will be major discussion points. The current proposal of EUR750bn is split between EUR500bn in grants and EUR250bn in loans. We are not confident that an agreement will be reached this weekend, but we expect it to be reached before the European commission starts its summer holidays in August.
The COVID-19 cases continue to spread at a worrying pace, notably in the US where states such as Texas are rumoured to shut down as early as today.
Final euro area inflation and ECB’s SPF report is out.
Selected market news
Risk assets had a tough day yesterday. Rising COVID-19 numbers, notably record fatalities in Florida and Texas, dented risk sentiment. The risk of continued (partial) lockdown is increasing. Fed’s Evans was worried about on the downside risks to the economy and as such assessed that policy stance should also have a downside bias.
US data showed that the initial jobless claims remain high at 1.3m with continued claims down to 17.3m from 17.8m the previous week. Retail sales control group +5.6% in June (May revised down to +10.1% from 11%). That means that the recovery continued in June but high-frequency data for July suggest the gradual recovery is taking a breather (probably driven by a combination of targeted, local lockdowns in struggling states and higher COVID-19 fears keeping people at home).
The ECB meeting yesterday was uneventful, see our flash comment ECB Research – When no news is good news, yet Bloomberg sources in the evening stated that the communication on one of the key pointers of the meeting was more nuanced than such. Lagarde clearly stated several times that the ECB intends to use the full EUR1350bn PEPP envelope, yet the sources said that some wanted the communication to be similar to what Schnabel and Mersch had commented on earlier (PEPP EUR1350bn is a ceiling). On the other hand, one member expects PEPP eventually to be increased. The nuances did not come through and as such the GC may not be in as much agreement as Lagarde conveyed. Using the full envelope is critical guidance to markets to gauge the monetary policy stance.
This morning we published our US Macro Monitor: Gradual recovery seems to be taking a breather based on high-frequency indicators. We look at the gradual recovery, which continued in June, but the high-frequency data for July released so far suggest the recovery is taking a breather due to a combination of stricter restrictions and people staying at home. We also take a look at the economic policy and US Presidential election.
