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Today’s most interesting moves occurred on the FX market and were partly technically in nature. The stretch between the pessimistic economic reality and the optimism ventilated through stock markets increased. European and US equity indices ignored a flurry of negative news, ranging from US/Chinese trade disruptions over US social unrest to setbacks in the COVID-19 vaccine development. The EuroStoxx 50 sets a recovery high and has its eyes on the 62% retracement level if the mid-February to mid-March sell-off (3269). The German Dax outperformed on news that German Chancellor Merkel is brokering support of a 2nd fiscal stimulus package. German Bunds already ceded ground yesterday when the stock market was closed for Whit Monday. Yet another day of positive risk sentiment was the straw that broke the Japanese yen’s back. USD/JPY broke above the 108.08 resistance which served as the upper bound of a sideways trading channel since mid-April. EUR/JPY said goodbye to sub 120 territory and tests the March high (121.15). The dollar ranked second worst performer in the positive risk environment. The trade-weighted greenback lost two important support levels this week: 98.27 (yesterday) and 97.84 (today; 62% retracement of March liquidity-rally). EUR/USD is intensively testing 1.1167 resistance (62% retracement). Apart from dollar weakness, the single currency benefited since mid-May on the slowly emerging details of a European recovery fund proposal. GBP/USD retakes the 1.25 handle for the first time since the start of the month May. Important resistance stands at 1.2648. Sterling slightly took the upper hand over the euro, but doesn’t return below 0.89. The queen’s money faces its own set of problems. The UK government is pursuing a risky strategy of hastily reopening the economy despite relatively high numbers of new daily coronacases. Additionally they face an end-of-June deadline on deciding on a possible extension of the December 31st transition period end date. The core bond market reacted rather calmly to the positive risk mood and the increase of oil prices. German yields decline by 0.3 bps (2-yr) to 1.1 bp (10-yr). 10-yr yield spread changes vs Germany narrow by up to 2 bps. The US yield curve bear steepens with yields 0.3 bps (2-yr) to 2.1 bps (30-yr) higher.

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Oil prices extended last week’s strong advance amid broad risk-on as well as investor hopes that major produces will agree to extend current output curbs during an OPEC+ summit later this week (probably June 4). The current production cut of about 10 million b/d runs through June but Saudi-Arabia already pushed to keep them in place for longer. Brent oil ($39.1/b, +2%) nears important resistance at $40.

Delinquency rates in the US commercial mortgage market tripled in May, from 2.3% to 7.4% in a sign of growing stress in the commercial mortgage market, which is linked to the $1.3tn CMBS financial market. Delinquent borrowers fail to make a missing payment within 30 days after the due date. Another 8.6% of mortgages were in that so-called 30-day grace period.

French finance minister Le Maire expects the economy to slump 11% this year instead of the 8% previously expected.  France should therefore continue with emergency support and other business-enhancing reforms rather than raising taxes, he added. Le Maire already announced plans for the tourism and car sector and will unveil measures for the aerospace next week with the start-up and building sector to follow afterwards.



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