Macro: Sandcastle economics
Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.
Chief Investment Officer
Summary: The EU Council meeting was a missed opportunity for European leaders to show more solidarity, as it failed to even agree on the nature for funding a recovery fund to be established by the EU Commission. We watch for worsening EU existential concerns in the trading sessions ahead as this looks like a worse failure than the immediate reaction showed.
The EU Council has kicked the can down the road once again, asking the EU Commission to create a recovery fund, but with differences remaining on whether the possibly more than EUR 1 trillion fund will be in the form of loans or grants, with German Chancellor Merkel specifically saying that “grants are not in the category of what I can agree”. All things EU existential are foremost on our radar today.
What is our trading focus?
What is going on?
The EU Council claimed to agree on significant measures in yesterday’s meeting, but no specific size for the package was agreed, with the group asking the EU commission to establish a EUR 1 trillion recovery fund that would be worked into the EU’s 7-year multiannual financial framework, or MFF. Clear differences on the source of funding remained, with EU Commission president Ursula von der Leyen claiming there could be a mix of grants and loans, while Germany’s Merkel did admit that its contributions to the EU budget would have to rise significantly, even if she spoke specifically against grants. The EU council will meet again soon, possibly on May 6.
Gilead Sciences supposedly promising virus drug Remdesivir was not successful in trials held in China, according to draft documents accidentally published by the WHO. Gilead stock (GILD:xnys) fell over four percent in yesterday’s session. Gilead publicly stated after the news that it didn’t find the study to be conclusive and would still investigate the drug as a potential treatment for COVID-19.
US House passed a $484 billion additional package for aiding small businesses, hospitals, and expansion of test, with most of the funding aimed at increasing existing programs. The Senate signed the bill the previous day and President Trump is expected to sign it today.
US Weekly Initial Jobless Claims were out yesterday showing another 4.4 million claims and the continuing claims data rose to just short of 16 million, or some 10% of the entire US labour force and that compares with the approximate 6.5 million worst levels of the 2008-09 financial crisis.
What we are watching next?
The unfolding reaction to the EU council meeting – both in terms of Italian BTPs, but also for sovereign debt spreads across Europe, the euro itself (having broken support in both EURUSD and EURJPY, see above), EU bank stocks and EU stocks in general.
Russia central bank – another central bank in EM looking to cut rates – for Russia this time 50 basis points to 5.50% even after significant pressure on the currency.
Q1 earnings season: today’s most important earnings are Boeing and American Express with the latter being particularly important given the provisions for loan losses published by banks last week in their credit card segments.
Economic Calendar Highlights (times GMT)
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