Opening Belle

September 14, 2020 • Estimated Reading Time: 6 minutes

DB will share his thoughts for the week ahead in the discord a little later.

Risk sentiment is off to a positive start, with a sea of Asian green on the screen...

Nasdaq futures are already up 1.5%, S&P +1.2% and even oil is pushing higher.

European markets should follow suit.

 Gentle recovery as trials resume.

European Opening Calls:#FTSE 6059 +0.45%#DAX 13278 +0.57%#CAC 5068 +0.68%#AEX 554 +0.42%#MIB 19938 +0.59%#IBEX 6986 +0.62%#OMX 1805 +0.18%#STOXX 3335 +0.58%#IGOpeningCall— IGSquawk (@IGSquawk) September 14, 2020 

Some commentators are attributing the up-tick in risk to positive vaccine news. Astra Zeneca have resumed trials on their Oxford vaccine.Pfizer/BioNTech has a “good chance” of submitting key data from late-stage trials to the FDA by the end of October, and say the vaccine could be rolled out to Americans by the end of the year (once approved). The company has already begun to produce the vaccine.

The ECB continued their jawboning over the weekend, with both Lagarde & De Guindos parroting the official line;

With their flurry of comments, ECB policy makers are attempting to strike a delicate balance between voicing concerns about the currency’s surge and avoiding any impression that they’re deliberately trying to weaken the currency.

Lagarde said on Sunday that euro-area economic recovery has been strong, but also uneven, uncertain and incomplete. The challenging economic environment continues to weigh on underlying price pressures, she added.

Despite the ECB’s stimulus measures, such as its 1.35 trillion euro ($1.6 trillion) emergency purchase program, “other factors, such as the appreciation of the euro have partly offset the positive pull coming from our measures,” Lagarde said. “Near-term price pressures will also remain subdued due to the recent appreciation of the euro exchange rate.”

Lagarde also zeroed in on the fiscal side of the equation.

With debt levels blowing past 100% of GDP this year, concerns are rising that politicians will struggle to push through more support and some subsidies, raising the risk that employment and income schemes could abruptly end.

“Confidence in the private sector rests to a very large extent on confidence in fiscal policies,” Lagarde said in a speech. “Continued expansionary fiscal policies are vital to avoid excessive job shedding and support household incomes until the economic recovery is more robust.”

Employment subsidy schemes have already been extended in several countries but some are advocating longer, one- or two-year extensions to bolster confidence while the bloc recovers from recession that could slash 8% from output this year.

“Keeping job support schemes in place is critical to avoid a sharp increase in unemployment later in the year,” she added in a speech to the Annual Meeting of the Council of Governors of the Arab Central Banks and Monetary Authorities.

Lagarde also urged a final deal on the European Union’s 750 billion euro recovery fund, which is still under negotiation and subject to political bickering.

It's fair to say the market has digested the ECB's stance on the euro rate now, and there is little more the ECB can do.

The SNB gets a currency manipulator "pass" from the U.S. as they are not using the weakened currency to boost their exports.

They use it to buy shares in AAPL instead.

The ECB cannot say the same, and are already on Trump's radar.

The focus now shifts to the European Recovery Fund (ERC), fiscal support, and that imminent political bickering.

Speculative euro longs were unchanged when the positions were reported on Tuesday.

So, positioning remains stretched to the long side.

Much of the recent euro strength can be attributed to the ERC announcement, so any attempt to water this down, or impose restrictions on other nations (frugals insisting on "fiscal prudence" from higher debt nations such as Italy & Spain for example) should weigh on the common currency.

On the calendar

Slim pickings.