Traders come to their desks on Monday with a cautious risk positive tone to sentiment. Europe is the focus this morning. There have been three days of intense discussions over the format of the proposed EU Recovery Fund, and as yet no agreement on how the push forward. However, the EU-27 are close. For now, the “Frugal Four” (The Netherlands, Austria, Denmark and Sweden) are still standing in the way of agreement, but apparently Denmark is wavering and there is not too much between the two sides. The proportion of grants and loans of the €750bn package seem to be the sticking points, and there could be potential rebates in the EU budget as further incentive to come to a deal. The talks resume at 1500BST today. However, the feeling is that the talks are making progress. Markets are taking this all positively as it would be a strong signal that the EU-27 is willing to push ahead with political union and in allowing the European Commission to raise common debt, is a huge step forward on the path to fiscal union. Core-periphery yield spreads are tightening (Italian 10 year BTPs over German Bund is around 162bps and the lowest since March) whilst the euro is strengthening. Aside from the euro move, there is little real other direction on major markets aside from a shade of yen weakness. Equities are mixed into the European session, although US futures are unwinding the gains of Friday.
Wall Street closed higher on Friday with the S&P 500 +0.3%, but futures have slipped back early today (E-mini S&Ps -0.5%). This has driven a mixed session in Asia, with the Nikkei almost flat +0.1% whilst the Shanghai Composite was +2.8% as buying took off again. In Europe there is a cautious start, with both DAX futures and FTSE futures around the flat line. In forex, the EUR gains are the main mover, whilst JPY underperformance is reflecting of the mild positive risk tone. In commodities, there is little direction on gold or silver, whilst oil is slightly lower by just over half a percent.
It is a quiet look to the economic calendar at the start of the week. The EU Current Account is at 0900BST and is expected to see the surplus widening to +€15.2bn in May (from +€14.4bn in April).
There are a couple of Bank of England speakers who are testifying to the Treasury Select Committee at 1610BST and could be of interest. Andy Haldane