A highly anticipated ECB Governing Council meeting with uncertain outcomes! "Key points and event schedule for June 4"

The Dow Jones Industrial Average rose by more than 500 points yesterday, surpassing 26,000, and the Nikkei Stock Average approached 23,000 yen.

With both the ADP employment statistics and the ISM non-manufacturing index coming out better than expected, there is a sense that the economic slowdown caused by the coronavirus has bottomed out, which is supporting a risk-on market.

Additionally, yesterday the Bank of Canada kept monetary policy unchanged, suggesting that the worst scenario has been avoided, and the Canadian dollar has remained firm.

◎ Today’s Highlights

1) ECB Council Meeting

Today’s meeting will focus on three points: additional easing, the share of bond purchases, and the recovery fund.

There is an expectation for an expansion of the 750 billion euro Pandemic Emergency Purchase Programme (PEPP) decided in March.

However, the share of government bonds purchased under the easing policy has become higher for Italy and lower for France.

Attention is on the Council’s reaction to the situation where bond purchases by the EU’s capital keys (contribution ratios) have become a mere formality, and on measures to be taken if further easing is implemented.

There is also interest in whether they will mention the introduction of the Recovery Fund proposed by Germany and France.

Whether the Recovery Fund will be introduced as grants or loans, and whether additional easing would be necessary if a 750 billion euro Recovery Fund is introduced, are all questions that will be of interest at the press conference.

2) China relations

Some reports say that China has stopped imports agreed in the first phase of the US-China agreement.

There were also reports yesterday that China will stop the entry of U.S.-made aircraft, which is seen as retaliation for not allowing entry of U.S. aircraft into China.

Concerns about deteriorating U.S.-China relations persist, and headlines regarding Hong Kong issues and U.S.-China relations should be watched closely.

Beyond the United States, the United Kingdom signaled it would accept immigrants from Hong Kong and criticized China regarding Hong Kong.

There were also announcements about decoupling China from 5G-related matters, so UK-China relations are also under close watch.

3) Risk-on

Despite negative factors such as the Hong Kong issue, U.S.-China tensions, and protests over police brutality against Black people spreading worldwide, the market has continued to rise as if ignoring these negatives.

Gold prices fell, stock prices surged, and the VIX index, which measures market uncertainty, has returned to the low 20s, near pre-COVID levels.

From the market’s reaction alone, funds appear to be moving from safe assets to risk assets, suggesting a risk-on environment.

There seems to be a divergence between negative factors and market reactions; attention is on which side will be corrected.

◎ Today’s Economic Calendar

Thursday, June 4

10:30 AUD Retail Sales

17:30 GBP Construction PMI

18:00 EUR Eurozone Retail Sales

20:45 EURECB Council Meeting – Policy Rate and Statement

21:30 EURECB President Lagardé Press Conference

21:30 USD Initial Jobless Claims and Trade Balance

21:30 CAD Canada’s Trade Balance

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