MORNING BID-EU rescue proposal, vaccine hope lifts spirits

A look at the day ahead from emerging markets chief correspondent Karin Strohecker. The views expressed are her own.

Following two months of hesitation, a joint EU response to the coronavirus pandemic in the shape of a German-French proposal seems to finally be making an appearance. The “Mercron” proposal of a 500 billion-euro recovery fund that will support the bloc’s regions and sectors that have been hardest hit by fallout from the coronavirus spread would be repaid from the EU budget, the major share of which is covered by Germany, and seems to mark a step towards tighter integration across the block.

News of the breakthrough lifted the euro to two-week high and saw yields drop in bonds from Italy and other southern European nations, expected to be a beneficiary of the proposal.

And hopes for progress on a coronavirus vaccine added to the chipper mood, after biotech company Moderna said it saw promising results in a small-scale human trial. Equity markets gained on the prospect of a return to a normal life and economy. Asian markets advanced, enjoying the afterglow of an upbeat session on Wall Street, which jumped 3.2%.

There are some signs that a tentative economic recovery is underway with the ZEW release in Germany, due this morning, expected to point to an improvement in economic sentiment and current conditions.

Crude oil futures are also caught up in the slipstream, scaling two-month highs on hopes of economic recovery and signs that producers appear to be following through with planned production cuts. Federal Reserve Chair Jerome Powell and U.S. Treasury Secretary Steven Mnuchin will testify before the Senate Banking Committee later in the day. Powell’s prepared remarks pledge a commitment to “using our full range of tools to support the economy in this challenging time”.

Labour market data from the UK showed jobless claims rose to their highest since 1996.

Stock markets in Frankfurt, Paris and London rose around 0.4% to 0.7%% at the open. With the end of the first-quarter earnings season approaching, trading updates are a little less grim. Swiss hearing aid maker Sonova reported better-than-expected annual core earnings, Telecom Italia stuck to its 2020 core profit forecast and Julius Baer posted a 16% rise in gross margins in the first four months of 2020. But some might still be on course for more pain, with tobacco group Imperial Brands saying the COVID-19 impact would be more pronounced in the second half of the year. Capital markets are alive and well with French diagnostics company Eurofins raising 535 million euros in shares to help build up COVID-19 testing capacities while Norwegian oil company Equinor got $3.4 billion in bonds to secure long-term funding at a time of weak crude prices.

U.S. futures point to a 0.5% rise on Wall Street on opening.

In currency markets, the euro rose to a two-week high against the U.S. dollar thanks to the German-Franco proposal while the dollar weakened alongside other safe-haven currencies such as the yen and Swiss franc. The Australian and New Zealand dollar flourished to their strongest in around a week. Britain’s pound recovered from Monday’s three-week low hit amid expectations the UK could join the sub-zero interest rates club.

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