Macro: Sandcastle economics
Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.
Chief Investment Officer
Summary: After new lows for the cycle in crude oil yesterday, prices have rebounded sharply and this recovery may have been behind a snapback rally in equities from the sharp sell-off the prior day. Today we look ahead to a critical day for the EU and whether existential cracks widen as the EU Council is set to meet on the size and source of funding for a pan-EU rescue package.
Markets rose persistently all day yesterday in the US before dipping slightly into the close, perhaps driven by a strong bounce in oil prices from fresh lows. Today is all about Europe and the EU council meeting, though we may not hear much during the day as these meetings can often drag on into late hours this evening.
What is our trading focus?
What is going on?
The ECB says it will accept some junk debt as collateral: This would only affect collateral that has been down-graded after the crisis began and it is clear that the chief reference is too Italian sovereign debt, which S&P ratings, for example, has currently at two notches above junk status.
Japan’s preliminary Apr. Services PMI dropped to 22.8 amidst a nationwide state of emergency, while the preliminary Apr. Manufacturing PMI managed a small drop to 43.7 from 44.8. Australia’s flash April Services PMI registered a 19.6 vs. 38.5 in March, while the flash April manufacturing PMI dropped to 45.6 from 49.7
Turkey’s central bank cut its policy rate 100 basis points, twice the size of the cut expected, to 875 basis points. The TRY has lost a carry-adjusted more than 10% versus the US dollar this year and the scale of EM rate cuts has rather surprised given pressure on their currencies.
Roche’s CEO Schwan warns on vaccine optimism, saying it usually takes several years to develop a vaccine and build up the manufacturing capacity especially for a global vaccine, so 12-18 months which is the market’s current expectation looks very ambitious.
What we are watching next?
Signals from EU leaders and the nature of the agreement at today’s EU council meeting – there are a number of proposed, highly technical solutions for how the EU will approach funding the massive need for supporting southern EU countries countries during this process. Our chief focus will be on the mood and signaling among leader more than the package itself and whether the meeting allays the markets’ pricing of existential concerns (spreads on EU debt, etc.).
EM currencies – signs of strain are showing up in the EM space yesterday (HUF, BRL in particular), with many currencies suffering weakness even on a day with nominally strong risk appetite elsewhere yesterday.
Q1 earnings season: earnings left to watch this week are Intel (Thu), Credit Suisse (Thu) , American Express (Fri), Boeing (Fri). Next week the big focus will be on technology companies with our focus on Facebook and Google as we believe the market is not adequately pricing in the sharp decline in online advertising that has taken place. As of today 10% of the S&P 500 companies have reported Q1 earnings and EPS is down 30% y/y and revenue is up 2% y/y.
Economic Calendar Highlights (times GMT)
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