There is clear disappointment that the warmer weather has not been effective in slowing the pace of virus spread but what is clear is wearing a mask does. The good that will come of the increase in positive tests is that those who think it’s cool not to wear a mask will start to get the message, whether voluntary or forced by the local/state government, that it is not. It is imperative that the anti mask wearers get the message because an increase in virus counts will dissuade the responsible ones from going out and spending and business will suffer.
Bullish sentiment as measured by II is now approaching extremes as the Bull/Bear spread is just below 40. Bulls rose to 57.3 w/o/w from 54.9 and that is the most since January 22nd. Bears fell for the 13th straight week to 18.4 from 18.6 and compares with 41.7 in March. The spread of 38.9 is the highest since that January 22nd date. Bottom line, at least by this sentiment take from strictly a contrarian stance this reading is a negative for stocks.
Coincident with the economic reopening, business confidence in both Germany and France improved m/o/m in June. The German IFO rose to 86.2 from 79.7 and that was a touch above the estimate of 85 with most of the gain coming from the Expectations component. The IFO said succinctly “German business sees light at the end of the tunnel.” As seen in the chart though, there is still progress to be made to get back to where we were.
The French business confidence index in June rose 18 pts m/o/m to 78, 6 pts better than expected. The services and retail sectors bounced the most with gains also seen in manufacturing and employment. For perspective, this index was 94 in March and 105 in February.
While both numbers exceeded expectations, a reopening gain was expected anyway and it’s why the euro is little changed, bonds are as well and stocks are trading off the virus spread news and on our tariff threat on some European products.
This is what you get when central bankers kill the bond market. Austria is selling its 2nd 100 yr bond and if you’re lucky enough to get an allocation for 2b euros of bonds you will get a massive yield of just .88%. In September 2017 when they last sold this maturity, the Austrian government paid 2.11%. Orders totaled for 13b euros. I see just about zero chance the owner of this new issue will make money over a 100 yr period on an inflation adjusted basis.