ON DECK FOR TUESDAY, JULY 21
KEY POINTS:
- · Stocks up as EU acts, US talks
- · EU approves recovery fund
- · CDN retail sales on tap
- · A$ leads on fiscal extension and RBA jawboning
- · US quiet
INTERNATIONAL
The EU passed its stimulus act and at least they’re talking about doing so in the US before the August recess although President Trump appears unfocused in his stimulus targets which may limit success. Both considerations are at least partly behind another risk-on move across global markets. The A$ is outperforming on fiscal extensions and RBA jawboning. Canada updates a couple of months of retail sales figures that should provide a tentatively complete Q2 picture of a substantial rebound. The US calendar should be quiet.
- US and Canadian equity futures are up by about ¾% on balance. European cash markets are up by as much as 2% in Italy given that country’s status as the biggest beneficiary of the EU fund.
- Sovereign yields are generally little changed with Italian spreads over bunds narrowing a bit further because of the EU agreement that was reached overnight.
- Oil prices are up by about 3% in terms of Brent and WTI. Western Canada Select—a proxy for heavy crude—is holding in around the US$31½ range compared to the low of under $4 in late April and the mid-30s range before widespread shut downs in March.
- The USD is little changed as the biggest currency movers are either guided by idiosyncratic factors (A$) or higher commodities (CAD, Mexican peso, krone etc).
The EU approved the €750B Next Generation EU fund overnight. The loans versus grants portion is roughly even at €360B versus €390B respectively. That’s less than initially proposed when the grants component was supposed to be €500B but it was watered down somewhat to appease opponents like Sweden, Austria, the Netherlands and Denmark. Of the €390B in grants, €312B is comprised of the Recovery and Resilience Facility that requires reform plans as the quid pro quo for disbursements tied to harm done by the covid-19 virus. To bring the northern states onside, a mechanism was added to allow them to object to disbursements that would require an EU leaders review and a maximum three month delay. Debt to finance the program will be repayable by 2058 and financed in part by new environmental and digital taxes.
RBA Governor Lowe’s overnight speech (here) combined with the minutes to the July 7th meeting (here) leaned against negative rates, A$ intervention and direct financing of government and resisted putting a range to the 0.25% 3 yr target that would result in bond buying to enforce the target by instead saying it was a judgement call. The government extended the wage subsidy program from the end of September to the end of March. The A$ was among the strongest overnight currency pairs to the USD.
CANADA
In N.A., the main focus will be upon Canadian retail sales (8:30amET). Not only will we get May’s results, we should also get a preliminary estimate for June that would give us a fresher overall reading. See last night’s Closing Points (here) and the Global Week Ahead (here) for more detail on the retail estimates.
US markets only get the Chicago Fed’s National Activity index (8:30amET) that only a few folks pay attention to; it’s a lagging composite of no fewer than 85 already released data.
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