MORNING BID-Relapse or reset

(A look at the day ahead from EMEA deputy markets editor Sujata Rao. The views expressed are her own.) Before we look at what’s moving today, here are a few significant facts:

First, Canada became the first country to lose its AAA rating as a result of the coronavirus-fuelled government spending surge when Fitch downgraded it last night. Disneyland is delaying its scheduled July 17 opening and hasn’t yet set a new date so far. The United States said it would impose tariffs on a range of European goods. Some U.S. regions are imposing travel restrictions on states where infection levels are rising. And finally, the Powell Put is still there for markets.

This morning, world stocks are down for a second day, Asian stocks have posted their biggest drop in eight days and U.S. stock futures are down 0.5% after all three U.S. indexes closed in the red.

The International Monetary Fund predicted world growth would shrink 4.9% and cut its U.S. forecast by 2 percentage points, now expecting it will shrink 8%. The VIX volatility index yesterday posted its biggest rise since June 11. Bond yields are lower today after 10-year Treasury yields hit a 10-day low of 0.669%; German 10-year yields are down 1.5 bps.

Renewed growth worries have seen the U.S. 2-year/10-year yield curve flattening 20 basis points since mid-June to around 48 bps. Job losses are coming in thick and fast, with Australia’s Qantas airline planning to sack a fifth of its workforce and U.S. weekly unemployment claims data forecast to show a seasonally adjusted 1.3 million, a Reuters survey shows.

Currency markets look moribund, with the dollar just above flat and the Canadian dollar at a 10-day low against the greenback, following the downgrade.

European shares are lower, as U.S. anger over a dispute with the European Union over aircraft subsidies pushed it to add items worth $3.1 billion to its list of goods eligible for duties. That increase the chances of EU tariffs on U.S. goods weeks before November’s presidential elections.

So is this a hiccup or the end of the so-called rally of hope? If we remember central bank largesse is still very much there for markets, it’s hard to see this as the start of another “sell risk, dash for cash” episode. Dollar liquidity remains abundant and there is little significant move in the dollar or other safe havens such as the yen and Swiss franc.

In European corporate news, the big mover is Lufthansa, up more than 27% after investor Heinz Hermann Thiele endorsed a 9 billion-euro government bailout. Lufthansa’s deal with unions should also reap more than 500 million euros in savings.

Germany’s Bayer also gained after it reached a $10.9 billion settlement on Monsanto-related litigation . Britain’s defence firm BAE Systems predicted a strong second-half recovery.

Telecom Italia (TIM) is to cash in 1.6 billion euros from the sale of 30.2% of INWIT . Mitie Group will buy Interserve’s facilities management arm for 271 million pounds. Italian insurer Generali is to take a 24.4% stake in Cattolica Assicurazione for 300 million euros.

Britain’s Royal Mail profits sank 30% and it may cut 2,000 management roles to save 130 million pounds. The Swiss watch industry could see sales falling 30% this year, the head of the Hublot brand warned. And easyJet airline is seeking to raise up to 450 million pounds in shares after a big first-half loss.

Emerging-market equities are down 0.6%, the most in eight trading sessions. The emerging-market currency index was 0.3% lower. Mexico and Turkey are widely expected to cut interest rates later in the day.

Source: Read Full Article