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ECB Meeting preview: Wrong Words in a Wrong Time
The April ECB meeting has all chances to become a factor of support for EURUSD. At the March meeting, Lagarde failed to show off ECB’s firepower at a critical time for the economy, forcing investors to demand extra returns for holding Euro (i.e. creating risk premium in it). They obviously expected “whatever it takes” tone from the ECB president but Lagarde didn’t live up to expectations. This ambiguity became a bearish factor for EURUSD. If Lagarde elaborates properly on ECB’s rescue plan, including details on the pandemic asset purchase program (PEPP) the risk premium in Euro will probably vanish helping the currency to outperform USD in the near-term.

Two key aspects of the meeting to pay attention are updates on pandemic asset-buying program (PEPP) and ability of Lagarde to reassure markets that ECB has enough ammo and won’t hesitate to use it. It is clear that the policy response of the ECB in March was less profound compared to the Fed:

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And although interest rates cuts and increase of QE operations should normally lead to decline in national currency this doesn’t happen when economic conditions do not favor expansion of credit (which is the main driver of money supply growth) so positive QE effects (like bringing ease to funding markets) become a factor of currency strengthening, leading to capital inflows! The Fed and dollar performance in March perfectly support this reasoning.

The PEPP program, which is so much talked about now, can be increased both in breadth (from the current 750 billion euros to 1.250 trillion) and in depth (including the purchase of bonds of the so-called fallen angels – former investment-grade companies falling into speculative category). If this happens at the meeting on Thursday, it will be a big bullish factor for the euro, but given that updated economic forecasts from the ECB will not appear until June, the expansion of PEPP may be delayed. One of the simple but useful indicators of risk for the Eurozone economy is the yield on Italian bonds and its recent decline from 2% to 1.7% suggests that the anxiety about problematic debtors has somewhat eased. This increases chances that the ECB won’t rush to expand PEPP in April, but a signal that this will be done in July will be nevertheless a moderate positive factor for EURUSD.

As for the press conference with Lagarde, attention should be paid to the comments regarding inflation outlook, economic growth, interest rate and QE paths. In March, Lagarde surprised markets with a rather neutral statement that “inflation is expected to rise in the medium term,” so Lagarde’s remarks on Thursday that the ECB is moving away from the inflation target is a baseline scenario and should not be surprising. No changes are expected in the interest rates and QE; comments on economic growth are expected to focus on confirming sharp slowdown in March and April. In general, the trading idea for the meeting on Thursday concentrates on Lagarde’s ability to correct communication mistakes made at the March meeting.

Reducing distance between the interest rates of the Fed and the ECB, declining demand for dollar as a safe haven may determine fundamental advantage of EUR over USD in the medium term.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
 
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EU Data: Two weeks of Lockdown and -3.8% of GDP Decline in 1Q
GDP

Recession in 2020 will go down in history as a deliberate economic sacrifice of governments in exchange of greatly reduced uncertainty. Incoming data shows that this step came at a great cost. Eurozone GDP fell by 3.8% YoY in the first quarter and it is only with lockdowns affecting economy just the last two weeks of March! The fallout is expected to spill over into the second quarter as the economy has been under extreme pressure for the whole month of April while weakening of sanitary restrictions will occur slowly and with extreme caution. We cannot also rule out long-term damage to consumer confidence which is yet to reveal itself in the data. The economic downturn is likely to exceed the magnitude of the first quarter, so the season of gut-wrenching data has probably just started.

French output fell by 5.8%, Spain – by 5.2%, Belgium – by 3.9%, Austrian – by 2.5%. There is a direct relationship between strictness of quarantine and impact on GDP as the latter reflects the degree of suppression of economic activity as well as restrictions on mobility of consumers. It means that German economy probably suffered less damage than France or Spain because the lockdown was less strict.

Unemployment

Unemployment in the Eurozone rose from 7.3% in February to 7.4% in March.

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The increase in unemployment turned out to be less strong than anticipated both due to the labor market rigidities ( which in turn are caused by higher costs of hiring and lay-offs, prevalence of short-term working schemes), and due to smoothing of the effects of two-week quarantine in March by two “normal” weeks at the start of the month. Due to the above-mentioned features of the labor market in the Eurozone, it is precisely the dynamics of unemployment that will explain the speed of recovery and affect market expectations for economic rebound. With rising unemployment in the Eurozone, the likelihood of a permanent blow increases.

Consumer Inflation

April inflation in the Eurozone fell to 0.4%. As in the case of GDP, the accuracy of the figures is still in question due to difficulties in collecting data. Core inflation, which excludes fuel prices, fell from 1% to 0.9%, while measuring it for sure was much more difficult than usual. PMI surveys for the block showed that firms reduced prices to increase sales, but so far this is not visible in the data.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
 
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Real Unemployment Rate in the US Could be Much Higher
Non-Farm Payrolls reports released on last Friday showed that US basic labor market metrics have deteriorated, albeit at a slower pace than expected. Unemployment rose to 14.7% (vs. 16.0% forecast), jobs count suffered steep contraction by 20.5 million (vs. 22 million forecast). It would seem that the less downbeat report prompts us to revise devastating impact of lockdowns and the outlook for labor market recovery in May and somewhat weakens skepticism about the S&P500 rally, however details of the report show that this conclusion may be premature.

Firstly, recall that the BLS defines unemployed as a person who lost his job but is in active search for it. The part “is in active search for it” basically forms an additional filter because there is also a part of the unemployed who are demotivated to look for a job and it is reasonable not to count them as unemployed when the labor market is in good shape, because they deemed to be demotivated for reasons that economists do not particularly care about (sufficient income, health problems, etc.). It is assumed that they do not reflect/impact labor market conditions. But it is natural that during a downturn, an increase in the number of demotivated workers most likely indicates an increase in the number of “desperate” unemployed (want to a job but gave up looking for it), which should be effectively counted as unemployed because their status does reflect worsening labor market conditions. That is, there are also unemployed “outside the workforce”, which the basic unemployment rate (the headline 14.7%) doesn’t capture, but which are important to count. Looking at the collapsed level of labor force participation, we can conclude that the number of these desperate workers has increased:

1-11-1024x465.png


Since February, 8.1 million people have moved out of the labor force and based on the analysis above, there are likely to be many “true” unemployed people in that category. Headline figures (14.7%) doesn’t count that.

Secondly, the importance of secondary indicators of employment, such as “employed, but absent from work for other reasons”, “involuntary part-time employment” unexpectedly increased. These indicators increased to 7.5 million and 6.6 million respectively. In my view, the fact that the BLS couldn’t count the gain in the first indicator as the gain of unemployed is pure formality, although it saw sharp increase during the lockdown period so it’s not hard to guess which were those “other reasons”.

So, let’s update our calculation of unemployment: 23.1 (basic BLS figure) + 8.1 + 7.5 + 6.6 = 45.5 million. Dividing this value by labor force (164.5 million) we get unemployment at 27.5%, that is, almost twice as high as the official indicator at 14.7% and higher than broad U-6 indicator (which include demotivated workers) which rose to 22.5% in April.

The April report did not have high hopes in terms of the ability to move the market, which, in fact, could be inferred from the calm market response to huge gains in the initial unemployment claims. However, with the country’s exit from the lockdown, the situation may change. In addition to the initial unemployment claims, continuing claims also come to the fore, which will be direct measure of recovery of employment. Much attention should be paid to negative surprises in continuing claims, as they will likely indicate permanently lost jobs, i.e. long-term negative effects of lockdown on the US economy which is of course not priced in the current S&P 500 rally.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
 
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Raising Price, Cutting Output: Mixed Signals from Saudi Arabia
Saudi Arabia underpinned oil mood on Monday announcing additional output cut by 1 million bpd. starting in June. The Kingdom’s output is expected to decline to 7.5 million bpd., the lowest level for almost 20 years. The underlying motive is probably to speed up market rebalancing and hence price recovery. It is worth mentioning that the decision of the Kingdom soon followed the telephone conversation of Trump and the King of Saudi Arabia. Brent jumped 5% on good news, but the bullish momentum proved to be short-lived as the price closed below the opening. Given the news that Saudi Arabia decided to rise OSP for June, the extra cut may seem as a weird move since by cutting output producer signals about expectations of declining demand, while charging higher prices is usually a sign of improving demand picture.

The Kingdom has successfully passed the baton of additional voluntary production cuts to other Middle Eastern countries, in particular Kuwait and the UAE which decided to follow suit and said they will reduce output by 100 and 80 thousand bpd in June, respectively. There is an aspect of the OPEC+ deal which explains limited optimism about the news: uncertainty in commitment of the individual participants to output cut targets. In other words, these additional output cuts may either surprise to the upside later, signaling about over-fulfillment of the plan or play out as a downside surprise if subsequent data reveals poor performance of other participants. For example, Iraq has historically turned out to be the least “diligent” member of the cartel (in terms of following a collective agreement), so there are concerns that the country won’t be able to deliver the output cut by 1 million b/d.

Today we expect the report from US Department of Energy (EIA), which will contain a short-term outlook for the oil market. It will be interesting to see how the agency adjusted their projections considering recent changes such as collapse of drilling activity and fairly rapid decline of the US production over the past few weeks. OPEC is going to release its monthly report on Wednesday and on Thursday the monthly EIA report is due which is of particular interest because of extremely vague demand picture and lack of reliable estimates of demand recovery.

The Chinese statistical agency reported that annual inflation in April was 3.3%, which is less than the forecast of 3.7%.

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But looking under the hood we don’t see signs of severe slack in consumption: decelerating food inflation accounted for a good part of the slowdown in the aggregate indicator. Core inflation which excludes volatile components such as good and fuel was up 1.1% in annual terms. At the same time, production price index indicated a deflation of 3.1% against the forecast of -2.6%. Given the reliance of manufacturing sector to foreign demand, PPI points to weakness in foreign economies.

Easing inflation pressures gives a firm nudge to the Central Bank to proceed with a new round of monetary easing, which should bring some relief for local and foreign risk assets. The quarterly PBOC monetary policy report released over the weekend indicated a growing bias of the Central Bank to strengthen liquidity support for the economy in the near future.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
 
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Oil and Gold: Review of the Key Drivers
Oil: Contango Eases

Tuesday WTI gains, which helped the price to close above $25, set the stage for modest Wednesday rally. While the market ponders over next leg of the rally, price difference between the December and June WTI futures continued to narrow:

1-13-1024x695.png


Declining market contango indicates several effects are in play:

  • Abating concerns related to the storage and transportation of WTI, including in Cushing (more on that below);
  • Oil funds completing the shift from near-term to more distant contracts (change in USO positions at the end of April as an example);
  • Easing supply pressure thanks to output cuts from OPEC+ deal, market-driven output cuts in the US and voluntary cuts from some Middle East countries like Saudi Arabia and UAE.
  • Slow recovery in demand for near-term oil supplies.
The American Petroleum Institute said yesterday that oil reserves rose by 7.5 million barrels, but most interestingly, Cushing inventories, according to the agency’s estimates, fell by 2.26 million barrels. If the EIA confirms this estimate, it will be the first inventory reduction since February. Negative change in Cushing inventories basically means that less oil arrives there than taken from it. It reinforces our view that production declines and demand grows in the US. In addition, this limits pressure on prices based on concerns that the June WTI contract may repeat the story of the May contract with the approach of expiration date.

As for EIA’s short-term energy outlook report, the agency has revised down its forecast for US oil output. The agency expects that the average production for 2020 will decline by another 70 thousand barrels to 11.69 million barrels (-540 thousand bpd in annual terms). The agency also predicts a decline in production of almost 800 thousand b/d in 2021.

XAUUSD: risks are shifted to the downside

In gold, we observe some stabilization near $ 1,700 per troy ounce; technically, recent price action on 4H timeframe forms triangle, which is usually a sign of breakout:

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There is strong evidence that Gold pricing depends a lot on inflation expectations in the US:

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This chart suggests some “hyperinflation fears” may be priced in Gold which are subject to revision with the latest inflation data.

Core inflation in the US in April fell by 0.4% MoM for the first time in 38 years, showed the report on Tuesday. Firstly, this is evidence of a severe drop in consumption, which tends to regain losses slowly. Secondly, this indirectly indicates that firms have accumulated record inventories and may be soon forced to make discounts, which is another factor of pressure on consumer prices. In my opinion, with the advent of clear deflationary trend in the US, gold loses the main growth factor. Soon we can see a “sell-off” of hyperinflation fears from the Fed’s policies and fiscal stimulus, as, in fact, evidence grows that they won’t materialize soon.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
 
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FX Beats: Major Pairs Outlook
U.S. dollar

Jay Powell’s testimonial on Tuesday demonstrated the Fed’s intransigent position towards negative interest rates in the US. Meanwhile the assessment of economic prospects was rather gloomy, which together with NIRP comments resulted in a rather unbalanced and unusually dovish communication for a traditional centrist (which Jay Powell is), which disappointed market.

The most important economic update in the US today is initial unemployment claims which are expected to increase by another 2.5 million. It’s considerably less than in the past weeks but given Powell’s gloomy outlook, a miss in the data is unlikely to surprise anyone, but a positive surprise will likely support risk appetite, again, due to the fact that dovish Powell comments laid a rather “low base” for expectations about the US economy. This should be taken into account in the interpretation of incoming data.

The EIA confirmed decrease in Cushing inventories (-3M barrels), which is very positive news for the oil market. The IEA revised the average oil demand in 2020 by +690 thousand barrels per day, the comments of the head of Birol were slightly optimistic. In particular, he said that the drop in demand was not as strong as expected, as countries continue to lift restrictions.

Pound

Uncertainty with the path of economy reopening continues to put pressure on the pound. GBPUSD has tested the April low at 1.22, but in my opinion, GBP still has a room to fall. Today, all attention is on the webinar of the BoE head Bailey. As I wrote earlier, the government’s plans to increase public debt should be supported by the monetary policy, because acceleration in debt growth needs low rates. In particular, in order to keep the yield on government bonds at a low level, the Central Bank may have to push QE pedal and expectations for this step are now one of the drivers for GBP shorts. In a television interview, Bailey has already made it clear that the discussion on this topic is important.

Euro

Today the vice president of the ECB Guindos will hold a speech so the euro may react to comments of the second person in the ECB. He said on Tuesday that the peak of economic contraction had passed, but it was becoming increasingly difficult to predict how the economy would recover. A little optimism was added by data on inflation in Germany (0.9%, forecast 0.8%) and unemployment in France (7.8%, forecast 8.4%). Italy has presented a plan for a new fiscal stimulus of 55 billion euros. There are few growth catalysts for the euro, however Fed’s Powell helped the dollar to take a solid position, therefore, the growth of EURUSD is limited and it may be worth considering short positions with short goals. Nevertheless, in cross rates the euro will probably not back down.

AUD

Data on the labor market for April showed that the number of jobs decreased by 594 thousand, but the unemployment rate did not increase as much as expected. In April, it was 6.2% with a forecast of 8.2%. Now AUD has come under the fire, like, however, all other currencies that were the beneficiaries of the recent surge in demand for risky assets, but from the point of view of fundamental data, the Australian currency’s positions are quite strong. One of the arguments for this may be the fiscal stimulus of the government, which amounted to almost 16.5% of GDP.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
 
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FX Beats: Major Pairs Outlook for This Week
Global markets started the week with moderate optimism thanks to positive news flow related to re-opening of economies, increasing consumer mobility and lifting of related caps on consumption. News about gradual return of Europe and some US states to their normal economic rhythm somewhat neutralize dismal reports from the economic front.

The spurt in risk assets is also supported by oil prices as their robust growth prompts upbeat adjustments of inflation expectations, key gauge of an economic rebound. Relatively expensive crude oil compared to recent period of low prices helped commodity currencies to lead within the G10 group, although their bullish momentum grows fragile due to risk of oil downside correction. The demand for risk assets is now also constrained by emerging risk of re-escalation of the trade spat between the United States and China due to Trump attempts of scapegoating. The size of long-term economic damage from lockdowns on firms remains unclear, however, for risk assets this risk will be likely negative. Regarding foreign exchange market, limited room for risk-on moves provide solid foundation for stronger USD, with DXY likely staying above 100 mark.

The European currency continued to hover around 1.08 mark on Monday. The easing of sanitary restrictions in one of the epicenters of the Covid-19 outbreak in Europe, Italy, indicates that lockdowns for Europe is largely a past issue. Markets’ focus shifts to consumer spending data in order to understand whether there have been changes in consumer habits and what is the impact of social measures distancing on them. EURUSD is expected to continue to fluctuate in the range of 1.08-1.09 for all this week.

For the pound, support at 1.20 looks fragile thanks to a series of comments by British Central Bank officials who shed light on the future of the UK’s monetary policy. The chief economist of the Bank Haldane hinted in an interview that negative interest rates (on the reserves of commercial banks in the Central Bank) could be added to the bank tools, in addition, recent comments by the head of Bank Bailey indicated an increase in the likelihood of QE expansion in June. The current pound valuation may also not fully capture the risk of Brexit negotiation breakdown, similarly to breakdown of the trade deal between the US and China. The target for the pair is a test of 1.19 mark.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
 
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Germany ZEW Index: Is the Worst Over?
Germany believes in a rebound! Another update on economic expectations from ZEW suggests that the worst for the Eurozone economy may be behind. Or at least perceived that way.

After the V-shaped movement in March and April, the ZEW index, which gives an aggregate current assessment and expectations of 350 financial experts and economists, stabilized in May. The expectations index changed from 28.2 in April to 51.0 in May.

At the same time, the current situation assessment index fell to -93.5, the lowest since 2003. The improvement in expectations obviously reflects the purely psychological effect of lifting of lockdowns, the latest episode of growth observed in European equities (which works as a leading indicator itself) and increased support from fiscal authorities and the ECB.

The ZEW index refers to comparative statistics, therefore, the rebound above the neutral mark of 50 points in May, to 51 points, suggests that expectations of the respondents became slightly better than in April. The “low base” effect accounted for the increase of the index above 50 points. This U-turn is now of particular interest, since it may be indicative of ф turning point in the economy. In general, soft data becomes more important when markets are on the look for signs of bottoming out and insights from leading indicators can give big advantage for savvy investors. Even if equities ran far ahead of themselves in the current rally, then expectations, not the hard data were the fuel for this growth.

ZEW expectations index for Eurozone rose from 25.2 to 46 points which suggests that the bloc’s recovery lags behind of Germany. However high-frequency data on consumer mobility in the Eurozone indicates that easing of the lockdowns will be very soon reflected in the bloc-wide soft data. If in April the mobility index based on Google Mobility data for Eurozone countries amounted to 60% of the January level (reflecting the peak of lockdowns) it has increased in May to 80%:

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Important thing to bear in mind trying to understand why bad economic data produces such tepid response is the fact that lockdowns took only a small part of the 1Q (the last weeks of March) and reached peak in the Eurozone in April. This means that GDP data for the second quarter, which we have not seen yet will most likely be worse than what we saw in the first quarter. Based on the stock market rebound investors may have already discounted that dismal 2Q data and are now trading the third and fourth quarter, which are widely considered to be recovery quarters. Market prices basically reflect a recovery which is at least 2 quarters ahead.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
 
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EURUSD Trade Idea: Risk of EU Fragmentation and Declining Risk Premium in the Euro
Asian and European equities caught little attention from buyers on Thursday, S&P 500 futures are looking for catalysts to break the 3000 mark, although they have less and less chances to do so because of expansion of anti-Chinese measures and intensifying anti-Chinese rhetoric in the United States. Recall that Congress approved yesterday a bill that allows blocking access for Chinese companies to the US stock market if they fail to “prove” their independence from the Chinese government. A few hours after the bill was passed, Trump attacked China again on Twitter, effectively interrupting the S&P 500’s hike to the 3,000 mark.

According to BoFA survey of investors, the share of hedge funds joining the rally in the stock market rose from 15% in April to 34% in May. However, fund managers maintain a record position bias to cash, apparently considering the rally a speculative impulse, “rally inside the bear market.” More than half of the fund managers interviewed said that among the potential “black swans” for the market, the first place takes a second outbreak of Covid-19 leading to a lockdown, in the second place – permanent job losses in the US labor market, in the third – the collapse of the EU. It’s pretty much clear that any information affecting the odds of these risks being realized will be the dominant factor in investor sentiment in the near future.

Regarding the risk of fragmentation in Europe, we see that credit risk premium in the yield on the debt of the most problematic debtors, for example Italy, continues to dwindle. Over the month, the yield on 10-year Italian bonds slipped from 2.3% to 1.6%. The idea of a trade on EURUSD may be that the premium for this risk in EU assets will continue to decline with the decline of this risk, so the pair should be finally able to test goals above 1.10. Technically, in the horizontal channel, we can see completed pullback, which wasn’t the case during past runs to 1.10:

Image-1.png


Consumer confidence in the Eurozone is responding positively to lockdown easing. In May, the indicator moved in positive direction, changing from -22 to -18.8 points. At the same time, it was expected that it would fall to -24 points. Consumer sentiment is a leading economic factor, primarily for consumer spending component of GDP. Nevertheless, the Eurozone manufacturing PMI in May indicated that the number of companies reporting a reduction in output was rising, albeit at a slower rate than in April.

Separately, in the German economy, we see weak dynamics of manufacturing PMI and the faster recovery of PMI in services sector, which is consistent with the dynamics of consumer confidence. The layoffs had not yet managed to overwhelm Europe, government money transfers kept consumption from decline, which was reflected in a faster restoration of the services sector. Production PMI in May at 30 points is another argument in favor of the fact that it’s unlikely to see rebound in manufacturing, which means that it is too early to think about slack in employment.

Japan’s exports and imports declined slightly less than anticipated. Of course, more interesting is the change in exports (about 19% of Japan’s GDP), in the context of a number of other export-oriented Asian countries (for example, China), where export data also pleased in April, this paints a more favorable picture of foreign demand.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
 
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