PEPP’in it up
|Market movers today
Today's highlight will be the ECB meeting. We expect the ECB to expand the Pandemic Emergency Purchase Programme (PEPP) envelope by EUR500bn into June 2021 to avoid undue tightening of financial conditions. Focus will also be on comments regarding the German constitutional court ruling on the PSPP programme and the updated staff forecasts, which we expect to paint a dire economic outlook (see more details in ECB Research - PEPP'in it up, 28 May).
In Sweden, the April production data are likely to look dismal (see details overleaf). Same goes for euro area retail sales for April.
In Norway, there will be a lot of interest in the Q2 oil investment survey due to the lower oil price and heightened uncertainty (see details overleaf).
Of more recent data, we get US initial jobless claims at 14:30 CEST and Bloomberg's weekly US consumer confidence indicator at 15:45 CEST. With respect to the former, it will be interesting whether we will see continued claims continuing to move lower or not. With respect to the latter, it will be interesting to see signs of a rebound (however, the current protests may suppress it further).
Selected market news
The global equity rally maintained its momentum on Wednesday as investors clung to optimism about a quick economic recovery from the pandemic despite continued violent protests in US cities. However, the risk-on sentiment was not limited to equity markets. EUR/USD rose above 1.12 for the first time since mid-March after data showed job losses in Europe remaining contained in April/May and economic activity slowly getting back on its feet. The US labour market also seems to be stabilising, with private payrolls falling by less than expected in May (-2.76m). This bodes well for tomorrow's US job report, although it is not always the most reliable indicator for non-farm payrolls. Oil prices defied the positive sentiment though, and gave up earlier gains, after this week's OPEC meeting was cast in doubt over cheating by some nations on their output cuts.
Germany keeps the spending taps running. Yesterday, the government approved another significant recovery stimulus package of EUR130bn (3.8% of GDP) for 2020 and 2021. The package is a combination of support for struggling municipalities, car sales incentives, a VAT reduction until the end of 2020 as well as direct payments to families with children. The fiscal boost comes on top of the EUR750bn coronavirus emergency package already deployed in March and the strong fiscal policy response is one reason why we expect the German economy to weather the COVID-19 storm better than other European countries (see The Big Picture - Reopening, recovery and risks, 2 June). That said, the package will come as somewhat of a disappointment for the battered car industry, as buying incentives exclude conventional petrol and diesel cars. As the bulk part of the spending (EUR120bn) will be funded by the federal government, we expect the supply of German government bonds to increase (see fixed income section).
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