Market movers today

Q2 GDP figures are due for release in the US and Germany and will reveal the depth of the economic fallout. We look for a decline in US GDP of 30% q/q (annualised) and 7.9% q/q in Germany. However, markets have largely factored in the terrible Q2 GDP readings and will hence put more weight on how the global recovery is unfolding at the start of Q3 (see also High Frequency Activity Tracker – Electricity demand questions German industry recovery, 29 July).

In Europe, the Commission’s economic sentiment indicator for July will complement last week’s constructive PMI message and likely confirm that the euro area recovery has gathered speed in July. German CPI figures will also be interesting, as they will show how businesses have passed on the temporary VAT cut to consumer prices in July (see also Euro Area Research: Germany’s VAT cut sends euro inflation on a roller coaster, 11 June). Unemployment figures from Germany (July) and the euro area (June) are also on the agenda. So far job losses have stayed relatively contained thanks to governments’ job retention schemes, but business surveys such as the PMIs suggest that companies continue to be in retrenchment mode.

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The US weekly initial jobless claims will also get some attention in the afternoon. Last week, jobless claims rose again slightly for the first time since March. Further signs that this adverse trend is continuing will likely weigh on market sentiment, as Congress still struggles to find agreement ahead of the expiry of extended unemployment benefits this week (see also Research US – Not extending higher unemployment benefits would lead to a significant negative income shock, 22 July).

Swedish wage data are unlikely to bring much news as wage talks are postponed until 1 October.

Selected market news

As expected no major news from the Federal Reserve yesterday, which maintained its current signal that monetary policy is not anywhere near being tightened again and that it will continue to use all its tools to support the economy. At the press conference, Fed chair Powell said the Fed expects to conclude its monetary policy framework review in the ‘near future’ and we continue to believe that the Fed will strengthen its forward guidance at the September meeting by saying that the Fed Funds rate will not be hiked until inflation for some time has been above the 2% target after several years of undershooting. We outlined our view in Fed Monitor: Fed favours outcome-based forward guidance over yield curve control, 1 July.

Markets cheered the Fed’s continued dovish message, with the S&P 500 adding to its July rally and the US dollar continuing its decline, while 10Y US Treasury yields held steady around 0.57%. The positive mood has carried over to Asia this morning.