Southern European bonds and the euro rose in the last two months after France and Germany raised €750 billion to rebuild the EU economies. On July 17-18, European leaders meet to discuss details. Disagreement remains as to whether the fund should be based on loans or grants. If negotiations stall, markets will take it badly.
Even a softened deal will be important, as it will allow the eurobloc to move towards mutual debt. This could mark the European "Hamilton moment" - a reference to the first U.S. Treasury Secretary Alexander Hamilton, who in the 1790s drafted an agreement allowing the federal government to take over the debts of individual states, sell treasury bonds to finance them.
The European Central Bank, meanwhile, is meeting on Thursday. No changes in monetary policy are expected from the ECB, but decisive EU action to revive the economy will ease pressure on the Bank, which can provide more stimulus. Then it may consider buying the national long for its asset purchase scheme.
The Recovery Fund will help the EU to make the EU the largest supranational issuer in the region.
In the U.S., prices of American producers dropped unexpectedly, which triggered a sale of the American dollar against most major currencies. Last week passed almost without important news, but this week is much more interesting. We expect retail sales statistics, data on production activity, consumer sentiment report, publication of Fed's Beige Book. We have a rather busy week ahead of us!
Against the backdrop of a tight economic calendar in the U.S. begins the season of reporting companies on income for the second quarter of this year and forecasts for the second half of the year. We will talk about this in more detail separately.
Despite the abundance of upcoming macro statistics, one of the main drivers on the currency market remains the epidemiological situation in the world and the government response.
America starts its second quarter profit reporting season this Tuesday. Refinitiv's data show a decline of 44.1% - the largest since the 2008-2009 crisis. Restrictions caused by the coronavirus have destroyed profits, especially in the energy, consumer and industrial sectors.
The current picture shows that investors are ignoring the prospect of negative reports for the second quarter, betting on the future. There has been more than one article and analytics written about the overbought U.S. stock market in the Internet, especially over the last month, so we are simply stating this fact, and we will not spread the word.
According to analysts of Bank of America, "a significant decline in income" is likely, even given the improvement of economic data in May and June. But more importantly for the markets that companies will offer a "very positive outlook" for the second half of this year.
However, investors will also "look" at data on new cases of covid-19 in the United States. Last Friday, a new anti-record number of new cases per day was set, namely 71787 people. The second "quarantine" with the closure is not yet waiting for anyone, and it will be too radical measure for today, when the economy has just started to get back on its feet. But this statistics should not be ignored, as it may suggest a possible fall in stock indices. And not only the USA.
As the world economy appears to have overcome the worst levels and demand for energy is gradually recovering, OPEC and its allies are expected to extend the 9.7 million barrels per day production cut made in June on July 15 to protect prices from collapse. And from August, the decline will be 7.7 million barrels per day.
Last Friday, the International Energy Agency reported a change in its forecast for oil demand in 2020. Experts have revised their estimates, according to the updated forecast demand will grow by 400 thousand barrels per day to 92.1 million barrels per day. Therefore, the meeting on July 15 may come as a surprise.
The question alone remains open. To what extent is the steadily growing number of new cases of coronavirus in the US preventing economic recovery? However, not very good news in other countries as well. For example, in June the demand for fuel in India fell not 7.9% compared to last year.
OPEC's efforts to bring more oil to markets will come amid renewed concerns about oversupply. The International Energy Agency warns that the risks in the oil market are "almost certainly negative".
Also on Wednesday, OPEC will release its monthly report on the state of the oil market and, as usual, data on the state of reserves in the USA. The equator of the week promises to be very volatile in the oil market!