Equity markets have been under pressure both in Europe and in the US
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It is time for flash euro area PMI for June. It will be interesting to see if there is any effect of the recent deterioration on the trade front. The data is typically collected from the 12-21 in the month. Manufacturing PMI has fallen for five consecutive months and after peaking at 60.6 in December 2017, it fell to 55.5 in May 2018. We expect a further fall to 54.8 in June. Service PMI has seen a similar development, declining from 58.0 in January to 53.8 in May. We expect service PMI to fall to 53.7 in June from 53.8 in May.
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Markit PMI for the US is also due to be released. The manufacturing index has moved up since mid-2017. However, we look for some moderation as hard data on exports, investment orders and consumption has been soft. We expect a decline from 56.4 in May to 56.0 in June.
Selected market news
Focus returned to Italy yesterday as the new government appointed two very eurosceptic lawmakers to influential parliamentary committees that deal with economic policy. Alberto Bagnai, who in two books has advocated for a dismantling of the monetary union, was appointed to head the financial committee and Claudio Borghi was appointed to head the budget committee in the lower house. The latter has been arguing strongly for so-called mini-BOTs, which could be seen as a parallel currency. 2Y and 10Y BTP yields widened 30bp and 22bp, respectively, to Germany.
The pressure on Italy might very well continue today after the IMF s Christine Lagarde said last night that financial markets could react violently to any fiscal easing or reversal of reforms. An IMF team is due to visit Italy in two weeks to deliver the scheduled assessment of the Italian economy.
While things are heating up in Italy once again, a deal between Greece and its euro area creditors was reached overnight. Maturities on the EUR96.6bn Greece received in its second bailout will be pushed out for 10 years and Greece will receive a grace period also of 10 years in respect of coupons and interest rates. The deal should clear the way for Greece to exit its bail-out programme in August.
Equity markets have been under pressure both in Europe and in the US. The combination of the Italian political crisis flaring up and a profit warning from Daimler weighed on sentiment in Europe. Especially the latter fuelled fears that the global trade war is now having a real impact on growth and profits. The negative sentiment was carried over to the US and the major indices all ended the day lower. Nikkei is also in the red this morning.
OPEC is set to meet today to review current production cuts that are due to expire by the end of the year. Tonight, a preliminary deal to hike oil production by 1mb/d was reached though the actual production rise will probably be somewhat lower around 600,000 barrels a day. But it might be difficult to reach a formal agreement today, as Iran that walked out of the meeting overnight. Iran does not want a hike in production. Without Iran and possibly Venezuela, a formal communique might not be send out. Note that non-OPEC member Russia is part of the current deal. The disagreement among OPEC members has pushed oil up by a dollar overnight.
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