Market Stagnation Envisaged -“Many Views”.

Market Stagnation Envisaged -“Many Views”.

Market Stagnation Envisaged -"Many Views".
Market Stagnation Envisaged -“Many Views”.


We will focus on how markets digest the FOMC report for yesterday. Our concentration will be shifted to the euro area finance ministers’ meeting today where they are set to discuss the EU’s recovery package and Euro group presidency success.

 

We will get weekly claims data reports for the United State today. We may not say exactly what the prediction would come out to be as the report in May, nonetheless focus will remain on whether the positive signals from the US labor market continue.

 

Danske’s forecast of Swedish inflation is at the lower end of the market. As all forecasts are well below the average of Riksbank’s ‘scenarios’, significant negative print is needed to move the market today.

 

The key factor economic report yesterday was the FOMC report. The Fed President Jerome Powell said that the fed is not currently thinking of increasing the rate and that the rate will remain at 0% level for now. The question from many analysts is that will the Fed decision, create inflation in the system.

 

In FX, the picture was somewhat mixed but the USD seems to still be on a declining path against most currencies. Meanwhile, yields to 10 years out remain depressed and fell a bit. We suspect the world’s biggest central bank may indeed be able to erode some of the past year’s broad USD strength, helping global growth, debt burdens, commodity prices, and demand.

 

In turn, we remain constructively positive on cyclical sectors such as banks and industrials. Scandinavian SEK and NOK should also be able to strengthen further in this environment, while we expect EUR/USD to rise to 1.15 near term.

 

We will continue to be on top of events in the European market, where the finance ministers are expected to meet on the EU recovery fund. Given the differences between the EU commission and e.g. the Netherlands and Austria, the proposal for the recovery fund needs some adjustment before it can pass through in the various parliament’s levels.

 

Chinese credit data reported yesterday points to a moderately stable economy. The data were given by new and old financing of infrastructure investments and probably also more credit to liquidity-squeezed companies. The report gave an insight into what we are seeing in the US and Europe where monetary aggregates are increasing gradually as well.

 

Overnight, markets opened up a bit negative. The US, European, and Asian equity futures are down to 1-2% and the dollar is retracing its way back up a bit including commodity currencies and emerging markets.

 

As regards the oil market, on Tuesday OPEC+ agreed to extend the production cuts for another month to the end of July, but with the extension mostly baked into market expectations, it has done little for oil prices at the start of the week. Nonetheless, the U.S. officially entered an economic recession in February.

 

Saudi Arabia also has agreed to cut more production as OPEC+ till another month. Saudi Arabia said that it would end the extra supply cuts that it had imposed in the second quarter. This move shows that Saudi is supporting the current development in the oil markets by cutting production and easing all excess it uses to add from the start.

 

CNBC reported “Weak refining margins could kill the oil price recovery,” according to a new report from Goldman Sachs, “If refiners pull back on processing, crude will pile up, pushing down prices”. Other analysts see the same trend. “One word of caution is if we look at the rally we’ve seen in crude oil prices, it’s been amazing, but the big uncertainty is if you look at refinery margins, they are very weak across the board across all regions.”

 

 

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