New Covid-19 cases are worryingly spiralling, as illustrated by the record-high 60,000 new ones reported in the US. But investors are still seeing the sunny side. Last week they homed in on imminent promises about vaccines, bidding equity indices higher. Fundamentals are getting better as reflected by an upswing in PMIs for both manufacturing and services. Retail sales are also rising, though at a pedestrian rate.

Reporting season kicks off in the US this week, and this is expected to shed some light on demand trends as well as containing updates on companies’ earnings prospects. US banking majors Bank of America, JP Morgan and Citigroup will get the ball rolling. Most likely they remained profitable in the second quarter though are expected to report sharply lower results, having to provision more for loan losses than in the first quarter. With markets remaining volatile between April and June, trading revenues will probably be solid. This outlook on loan losses is probably already priced in, bearing in mind that financials have not recovered to the same extent as the wider S&P 500.

The ECB will provide an update on the radical economy-boosting measures it undertook when it meets this coming Thursday. Then on Friday begins an extraordinary EU summit, bringing together the leaders of the 27 Member States to discuss the EU’s long-term budget. They will also hammer out the contours of the post-corona recovery fund, weighing in at a massive EUR 750 billion, which emerged from initial negotiations in June but which has since sparked disagreements. If plans are approved, this would mark the first time the EU has ever borrowed on the market in its own name and a step towards fiscal integration.

Liquidity injected by central banks continues to underpin credit, especially in Europe, where the ECB has so far bought EUR 46 billion worth of corporate bonds – one quarter of total eligible issuance. Technically, conditions are supportive for spreads to continue narrowing as the rate of issuance is set to slow.

In addition China will report second-quarter GDP this week. The consensus forecasts 2.2% year-on-year growth after a 6.8% contraction in the first quarter.
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