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Positive start for Europe on lockdown easing optimism

CMC Markets

Asia markets have got off to a positive start as a raft of countries get ready to lift restrictions on the various states of lockdown in their economies, while here in the UK, the government is coming under increasing political pressure to do something similar, as infection and death rates continue to fall.

UK prime minister Boris Johnson is reported to be returning to work today and attention will be on him, and in particular the government more broadly, to announce some sort of pathway out of lockdown, as it becomes increasingly apparent how much economic damage is being done to the UK economy.

The Bank of Japan met this morning against a backdrop of a Japanese economy struggling with a rising infection and death rate, after the Japanese government lifted some of their earlier protective measures too early. The central bank left monetary policy unchanged as well as increasing the limits on its corporate bonds and commercial paper programmes, and removing the limits on its purchases of JGBs. This had been widely trailed at the end of last week, so was expected. The bank also modified its forward guidance in a signal that its immediate priority is the economy and not its inflation target.   

Oil prices have also resumed their recent weakness in early trading, after rebounding at the end of last week on the back of speculation of a bailout of the US shale patch by the US administration, and some hawkish to and fro between the US and Iran over some naval engagements in the Persian Gulf.

With storage in the US already close to its limits, and no sign that any party is looking at serious production cuts we could well see a revisit of the lows we saw at the beginning of last week.

It’s also a big week for central banks with the announcements of the latest Federal Reserve and European Central Bank rate decisions likely to give some indications of how seriously two of the biggest global central banks see the economic outlook shaping up in the coming weeks, as well as how much flexibility either has to go further in supporting their respective economies. In the case of the ECB, there is a concern that they are seriously constrained by their political limitations, as well as a fragmented political and fiscal response from European politicians.

It’s also a big week for US earnings, with nearly half of the S&P 500 set to report on their latest quarterly numbers, with the likes of Tesla, Apple, Amazon and Boeing to name but a few, set to outline what the earnings landscape is likely to look like over the next few weeks.

UK banks are also likely to paint a fairly dark picture of the UK economy as they update the markets against a backdrop of a slowing economy, and in the wake of their recent decisions to cancel their dividends on the back of pressure from the Bank of England.

A positive finish to the week for US markets on Friday also helped to buoy sentiment, with New York mayor Andrew Cuomo reinforcing that on Sunday by saying that he plans to open the New York economy in stages. Markets here in Europe look set to take their cues from this optimism over lockdown measures being eased, with a positive open in just over an hour's time.

 


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