US-China tensions continue

Market movers today

Today is another day with a rather thin calendar in terms of economic data releases. In Norway, we get retail sales for April and unemployment data (LFS) for March. The former is expected to have declined 1.2%, as spending was weak at the beginning of the month but started to recover by the end of it. To some extent it is ‘old news' already, as we have seen a stronger recovery in consumer spending (based on transaction cards) in May. Besides that we get French consumer confidence for May. Looking at other countries, consumer confidence has risen slightly and that may very well be the case in France as well, as the worst also seems to be behind the French now.

ECB President Lagarde will participate in a virtual session answering questions posted on social media (09:30 CEST), which will draw attention in light of Villeroy's comments on Monday night. Otherwise, we will look out for the usual suspects: Covid- 19 data, the reopening of the advanced economies, increasing US-China tensions and rising Brexit risks ahead of the fourth negotiation round beginning on 1 June.

The European Commission is also set to unveil its revised proposal for the 2021-27 MFF long-term budget framework and recovery fund, which will be the basis for discussion among EU leaders in the coming weeks. In light of the resistance from the frugal four (Denmark, Sweden, Austria and the Netherlands) to the grant donations in the German-Franco recovery fund proposal last week, it will be interesting to see what balance between loans and grants and the size of the recovery fund the commission lays out in its proposal today.

Selected market news

There are ongoing tensions between the US and China, with President Trump posting another tweet that the US is ready to take "very interesting" action towards China by the end of the week over Hong Kong. In Hong Kong, the protests continue against China's plans to change the national security laws. The tensions between the US and China halted a robust rally on Wall Street and S&P ended with a modest increase of 1.2%. The Asian equity markets opened mixed this morning.

Comments from Federal Reserve Governor Bullard were optimistic over the recovery of the US economy and the outlook for the US labour market. He expects a solid recovery in Q3 and that unemployment will decline to some 10% as the economy reopens.

In an interview with the Financial Times released this morning, the ECB's Schnabel stated that the ECB is ready to act and use any instrument "if it judges that the medium-term inflation outlook has worsened". Furthermore, she stated "with respect to the Pandemic Emergency Purchase Programme, this concerns the size but also the composition and the duration of the program. We are ready to react to new data coming in". Hence, this is another comment similar to the French Central Governor's made earlier this week, that the ECB will act if needed. We believe this raises the probability that the ECB will increase the PEPP at next week's ECB meeting.

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