(A look at the day ahead from EMEA deputy markets editor Sujata
Rao. The views expressed are her own.)
The euro is basking in the afterglow of yesterday's European
Central Bank meeting; having just enjoyed its longest winning
streak since 2011 -- eight days -- it could extend that all the
way back to 2004, should it post another day of gains.
The ECB action, extending the PEPP emergency programme by
another 600 billion euros until June 2021, comes on top of the
EU recovery fund proposal and a new German fiscal stimulus
package. The euro is 0.3% higher this morning, and has rallied
further against the Swiss franc to the highest since early
January -- a sign the euro break-up trade is taking a battering.
It's enjoying its best week against the franc since mid-2017.
The ECB move also lowered Italy's 10-year bond yield spread
to Germany by 20 bps. "Safe" German and U.S. bonds are selling
off – U.S. 10-year yields are now well above 0.8% at two-month
highs.
The dollar, meanwhile, is headed for its third consecutive
week of losses at 96.808, staying close to the lowest in nearly
three months. Its weakness is lifting even currencies such as
the British pound, and an emerging-market currency index is on
track for its best week in over four years. The Aussie and Kiwi
dollars have jumped more than 4% this week.
As for equities, MSCI's world index is holding near three-
month highs while U.S. futures are up 1%. Asian shares enjoyed
their best week in nine years – at a time when Sino-U.S.
tensions are rising, social unrest wracks many U.S. cities and
economic data are mostly still pretty dire.
But the focus is on economies re-opening and travel starting
to resume. That was reflected yesterday in shares in American
Airlines, which soared 40% after it said it would beef up its
flight schedule in July to 55% of year-ago capacity.
It's also put oil prices on track for a sixth weekly gain,
with Brent up 14% so far this week.
Looking ahead, the May U.S. non-farm payrolls report is
expected to show a decline of 8 million jobs after April's
record 20.54 million plunge. The unemployment rate is forecast
at 19.8%, a post-World War Two record.
But with Wednesday's private sector ADP jobs report showing
a smaller 2.7 million drop in May and yesterday's weekly jobless
claims well below recent weekly averages, hope is the economy is
bottoming out.
Increasingly, focus is on the steepening U.S. yield curve,
where longer-term borrowing costs are rising faster than shorter
tenors. The 2-10 curve is the steepest since March 20, while
5-year/30-year curve goes back to end-2016. Certainly an issue
the Federal Reserve will discuss at next week's meeting.
European shares are up 1.6%, led by travel stocks. Autos and
banks are also shining - the classic recovery trade. Airline
shares IAG and easyJet are up nearly 9%. The pan-European STOXX
index has added some 350 billion euros to its market value this
week.
In corporate news, the pandemic fallout continues to
dominate. AstraZeneca said it would be able to supply
more than two billion doses of its potential coronavirus
vaccine; Stobart will exit rail and civil engineering
businesses to offset the coronavirus hit.
There is some good – homebuilder Taylor Wimpey reported a
surge in interest in buying homes, while rival Persimmon is to
restart construction sites from Monday, following similar
announcements by Taylor Wimpey and Vistry.
Emerging-market stocks and currencies are near-three-month
highs. Currency gains are broad, with Mexico’s peso, South
Africa’s rand and Russia’s rouble up 0.6%-0.8%. China's yuan has
strengthened 0.3%.
