This morning, markets appear slightly muted following the risk-on rally at the end of the week following the bout of ECB stimulus, a better than expected US employment report (ignoring the millions on temporary layoffs), stronger than expected China export print for May, and Japan’s upside Q1’20 GDP surprise. Trump’s suggestion of ‘additional stimulus money’ and potential ‘payroll tax cut’ also supported market sentiment. The S&P gained just under 5% last week. The VIX Index, although still elevated, calmed towards the end of the week but has spiked higher this morning and the dollar also continued its downward trend having fallen -1.43% last week.
Meanwhile, the UST curve sold-off following the US employment dump. The 30-year benchmark yield jumped 26bps over the week to 1.67%, and is trading above 1.70% this morning. It appears markets are still of the opinion that the Fed will consider yield curve control; two-year USTs were up 5bps over the week. Elsewhere, Brent has maintained its broader rally, having breached $42pb on Friday after OPEC+ agreed to extend the production cuts. Aside from the exercise of singling out certain ‘cheat’ nations, it did appear that the oil cartel has found some form of togetherness following the falling out in March.
This week global economies continue to relax lockdown restrictions. The UK expects to hear from PM Johnson on further revival of economic activity, however, there are reports that R is above one in some parts of the UK and the NHS has warned of a second wave. Moreover, the 14-day isolation rules for travellers entering the UK kick-off today. As UK-EU Brexit negotiations have come to a head, over the fishery sector, the UK is reportedly looking to continue free-trade agreement talks with Japan, due to continue on Tuesday. Later today the World Bank is due to release its semi-annual Global Economic Prospects report. President Malpass said the bank expects “a deep global recession accompanied by a collapse in global trade, tourism and commodity prices, and extraordinary market volatility.”
All eyes will shift to the Fed as the FOMC committee begins its two-day meeting on Tuesday, expectations are for the central bank to stay pat on rates, to further support the current stimulus package and it may give further clues on yield-curve control. US wholesale inventories could be of interest on Tuesday. Wednesday sees the release of the OECD economic outlook, and China and US CPI prints for May. On Thursday Euro-area finance ministers will meet to discuss the group’s recovery package and succession for Eurogroup presidency. For those sports lovers out there the PGA restarts with the Charles Schwab Challenge in Fort Worth, Texas on Thursday. A pretty quiet Friday will see the US sentiment gauges, and Euro Area and UK IP readings.