(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%.