(A look at the day ahead from EMEA deputy markets and financial services editor Sujata Rao. The views expressed are her own.) It looked like the Federal Reserve had short-circuited the dollar, which slipped back to a three-month low after the U.S. central bank confirmed rates would stay near zero through 2022. But two things have frightened markets – first, the Fed’s ultra-gloomy (though hardly surprising) outlook on the economy and unemployment, and second, an apparent resurgence in COVID-19 cases across the United States.
Arizona, New Mexico and Utah saw cases rise by 40% for the week ended Sunday, according to a Reuters analysis. Florida and Arkansas are other hot spots. Nationally, new infections are up slightly after five weeks of declines. That raises fears of a second wave of contagion and more lockdowns.
By close of New York trading, the dollar’s knee-jerk losses were gone, shares fell and today, U.S. futures are down more than 1%. World stocks are down 0.4% and European shares have fallen about 2%. Coronavirus fears have pushed Europe’s travel and leisure index down 5%.
Oil prices are also down 4%, with oversupply fears stoked by U.S. crude stockpiles at record highs.
However, the Powell Put is alive and well – the Fed will maintain bond purchases at “the current pace”. It stopped short of announcing yield-curve control measures, but its message sent the 2-year/10-year Treasury yield curve below 60 basis points — it was at 72 bps last Friday, the steepest since March. Treasury 10-year yields are at one-week lows now, as are German yields.
That should mean the equity rally will resume before too long, barring any COVID resurgence. But the most worrying part of Powell’s message was his view that employment would not recover any time soon. So today’s U.S. weekly jobless claims will be of interest. Economists expect around 1.55 million new claims for the week to June 6, versus 2.5 million last week.
Today, a European finance ministers’ meeting today will allow countries to express views on the European Council’s latest proposal for the euro recovery fund. That might have a bearing on the euro, which has pulled back after rising past $1.14 yesterday.
Dollar strength is weighing on most other currencies, too. The Aussie and the Norwegian crown are down 1%, and in emerging markets, Mexico’s peso – a weather vane for the U.S. economy - tumbled 1.4%. Other emerging-market currencies from the rouble to the rand are down 0.7% to 1%.
In corporate news, Just Eat Takeaway.com bought U.S. peer Grubhub for $7.3 billion, which would create the world’s largest food-delivery company outside China.
Employment news remains dire. Lufthansa says up to 26,000 employees are at risk of losing jobs. Chemicals firm Johnson Matthey will cut around 2,500 jobs and Heathrow airport, with 7,000 staff, said employment levels were no longer sustainable.
OPAP, Europe’s fourth-biggest betting business, reported a 38% drop in first-quarter profit; UK telco TalkTalk posted 9.7% core earnings growth and maintained dividends; Ocado plans to raise 1 billion pounds in equity and bond issuance.
In emerging markets, Malaysia’s 32% year-on-year drop in factory output underscored how poorer economies are being squeezed. Mexican industrial output figures due later are expected to show a 20% drop. But the worst news is on the virus front, with Latin America’s death toll now exceeding 70,000 and India reporting a record of nearly 10,000 new cases on Thursday.
Editing by Larry King