Financial markets are in risk-on mode with both US and Asian equity markets advancing as the US S&P 500 index rose yesterday for the fourth consecutive day and the positive tone from the US spread to Asia, where most indices are advancing this morning, explains the research team at Danske Bank.
Key Quotes
“The markets for now seem to shrug off the growing tensions on the trade front, where the upcoming G7 meeting tomorrow and Saturday is likely to expose disagreement on the issue between the US on the one side and other G7 members, notably Canada and European countries, on the other, which have recently been hit by US steel and aluminium tariffs and have promised retaliatory measures.”
“While the US and Asian equity markets are advancing, the European markets remained under pressure given signals from the ECB of an imminent announcement on the end of QE and renewed concerns about Italy’s new government’s populist agenda. Yesterday, several ECB members provided hawkish comments, with ECB Chief Economist Peter Praet the most prominent, as he stressed the growing evidence about labour market tightening and wage growth provided. Market consensus is now swinging towards the ECB next week assessing the APP programme, but we stick to our view that an announcement on the end of QE and a change to forward guidance is premature at this meeting, while such changes are likely to come at the July or September meetings.”
“Italian bonds sold off yesterday after the new Prime Minister Giuseppe Conte’s speech to the Italian senate on Tuesday. In it, he continued to pledge to lower income taxes and expand welfare payments, at the same time calling for a ‘radical’ change to the eurozone economic ruleset. This unnerved investors, but we still lack a lot of details on the exact economic policy programme in order to gauge whether the government will indeed expand the deficit or rather phase in the new measures cautiously over time.”
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