Fed not looking at negative rates

Jens Nærvig Pedersen Danske Bank A/S

Market movers today

On a day with few noteworthy releases, the key number to watch is the US initial jobless claims, which will give a verdict on the current state of developments in the US labour market, which has been hard hit by the sharp rise in unemployment since the start of the COVID-19 crisis. Bloomberg consensus expects the sharp rises to wane with an expected 2.5m new unemployed expected. Yet, that would still bring the number of unemployed to 25m. Today we host a virtual session with Jacob Funk Kirkegaard, Senior Fellow at the Peterson Institute, on the COVID-19 crisis in the US. The session will focus on the chaotic reopening and implications for the forthcoming election.

In the Eurozone, ECB's Guindos speaks at 17:00 CEST.

Moreover focus is on the re-opening of societies around the world and whether the virus is sufficiently under control to avoid a new fast spreading.

Selected market news

Fed chair Jerome Powell yesterday dismissed the possibility of negative rates in the US saying ‘it isn't something we're looking at'. The market is still priced for the Effective Fed Funds rate to dip into negative territory next year, but his comments could stop the market from pricing an even lower Fed Funds rate. Powell also urged fiscal and monetary policymakers to rise to the challenge, hinting that further policy support might be needed.

Yesterday brought news on the oil market. Iraq said that it had agreed with major oilproducing companies to cut output by 300kb/d bringing total output cuts in Iraq to 700kb/d. It is still short of Iraq's output cut target for May and June of more than 1mb/d in the recent OPEC+ deal, which shows that compliance may be an issue for OPEC+. In the US, the weekly oil report from EIA showed that US production dropped another 300kb/d to 11.6mb/d as producers are adjusting to lower prices. Inventories fell slightly, which is a first encouraging sign that supply and demand have started to balance. In relation to the latter, CFTC yesterday issued a warning to prepare for the possibility of renewed significant price volatility and possibility of negative pricing. The warning comes ahead of the expiry next Thursday of the WTI contract for June delivery.

The Italian government yesterday agreed to a EUR55bn stimulus package to support the economy following the lengthy lockdown. It includes among other things extra funding for firms, tax cuts and grants for SMEs.

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Jens Nærvig Pedersen

Danske Bank A/S

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