US ends waivers for Iran's civil nuclear programs in latest maximum pressure campaign move

28th May 2020

Yesterday’s Market

• EUR ECB's President Lagarde speech; Consumer Confidence
• USD Richmond Fed Manufacturing Index(May)

Yesterday’s Explained 

US responds to new Chinese security law in Hong Kong - President Trump’s comments were vague but suggested a “powerful” rebuttal would arrive by the weekend. US Senator Rubio confirms in tweets that the sanctions will be going ahead if China passes the Hong Kong bill. Japan set to unveil a further $1 trillion in stimulus. The new stimulus package, which includes loan guarantees, support for local economies, and rent subsidies, would take Japan’s deficit to worse than 20% of GDP for this year, a record.

Twitter labels Trump’s tweets for fact checking which is the first time and means that Twitter has crossed the Rubicon and indirectly defined itself as media company. This could have wider implications for Trump’s election campaign as Twitter is his go-to channel but also implications for Facebook that has repeatedly resisted the media label as the company knows it comes with higher operating costs.

Chicago Fed National Activity Index plunged to -16.7 in April beating the previous record of –3.4 in January 2009 during the low point of the financial crisis. The index at zero means trend growth and minus values indicate negative deviation from trend growth. The massive plunge was obviously expected so the coming months will be the key test in terms of how the economy rebounds.

The euro headed towards a two-month high against dollar on Wednesday after the European Commission proposed a coronavirus economic recovery package worth in total 1.85 trillion euros ($2.04 trillion). The euro has struggled since falling in March, when investors rushed for the safety of dollars. But analysts say the recovery fund proposals, if they can win over EU members skeptical of an earlier Franco-German plan, could push the euro higher.

Sterling fell 1% on Wednesday as investors’ focus shifted back to the possibility of negative interest rates in Britain and on comments from government officials that not much progress had been made in Brexit negotiations.

The dollar strengthened against the Japanese yen on Wednesday as worries about the U.S. response to China’s proposed security law and renewed protests in Hong Kong supported safe-haven demand for the greenback Financial markets have been caught in a tug-of-war between optimism and pessimism about the global outlook.

Gold fell on Wednesday to its lowest price in two weeks as the easing of coronavirus restrictions around the world fed optimism that the global economy could rebound. Oil prices fell on Wednesday on concerns over how quickly fuel demand will recover even as lockdowns ease in many countries with falling coronavirus cases, with U.S.-China tensions adding to pressure.

 

Today’s Market

• EUR Business Climate;; Harmonized Index of Consumer Prices 
• USD Initial Jobless Claims; Nondefense Capital Goods Orders ex Aircraft(Apr) ; Gross Domestic Product Annualized(Q1)

Today’s Focus

For the EUR, it’s another relatively quiet day ahead on the economic calendar. Key stats include prelim May inflation figures from Germany and Spain. Business and Consumer confidence figures out of Italy and the Eurozone should have a muted impact, following the EU’s COVID-19 recovery plan announced on Wednesday. We will expect EU’s recovery plan and the continued easing of lockdown measures to provide support. The markets will need to track any chatter from Beijing and Washington, however. Any rise in tensions and action from either side will test risk appetite on the day.

For the Pound, it’s yet another quiet day ahead on the economic calendar. There are no material stats due out to provide the Pound with direction. On Wednesday, we saw the Pound take a hit in response to the threat of the BoE cutting interest rates into negative territory. BoE Chief Economist Haldane had attempted to pour cold water on such a prospect but to no avail. Through the day, expect market risk sentiment and any Brexit chatter to be key drivers.

Across the Pond, it’s a busy day ahead on the U.S economic calendar. Economic data includes April durable goods, 2nd estimate GDP numbers, and pending home sales figures for April. Barring any deviations from 1st estimates, expect April’s core durable goods orders to garner some attention. Any moves in response to the durable goods orders are likely to be limited, however. The market focus will be on the weekly jobless claims figures.

There’s plenty of optimism as the U.S economy continues to reopen, but whether the markets can stomach another 2m jump remains to be seen.