MORNING BID-Buy in May — and in June

(A look at the day ahead from EMEA deputy markets editor Sujata Rao. The views expressed are her own.) It’s nowhere in the league of the mega-RJR Nabisco leveraged buyout immortalized in the 1989 book (and subsequent film) “Barbarians at the Gate”, but a Reuters report that a consortium of buyout funds is looking to make a takeover bid for Spanish telco MasMovil shows private equity may still be able to do its thing. It’s oddly reassuring in these troubled times to see the barbarians still have the appetite to launch attacks — MasMovil shares are up 23% this morning.

Elsewhere, not only did investors not sell this May, they drove the S&P 500 index 4% higher for the best May since 2009. Likewise, Brent crude recouped much of what was lost in March. And Italian bond yields fell 30 basis points last month after the European Union pulled a rabbit out of the hat with a 750 billion-euro recovery fund proposal.

So we go into June with that bullish mood intact – despite tensions between China and the West over Hong Kong, U.S. protests and uncertainty over the coronavirus trajectory. Focus is instead on the resumption of economic activity and hopes data in the rest of the world will follow China, where official PMIs for May remained in expansion and the private Caixin manufacturing PMI beat expectations.

South Korea’s May exports – a key global trade indicator — declined but exports to China improved. Its currency gained 1%, its biggest intraday percentage gain since April 17.

Asian shares surged to new three-month highs, European markets are up 1%-2% and Wall Street is set to rise after President Donald Trump merely ordered an end to Washington’s special treatment of Hong Kong, rather than jeopardising hard-won trade agreements with China.

The risk-on mood has pushed the dollar index to 11-week lows while risk-sensitive Australian, New Zealand and Canadian currencies have risen 0.5%-1%. An emerging currency index is up 0.7%, with the rand and rouble gaining more than 1%

The euro, having broken above the $1.10 barrier, has powered to mid-March highs. And its move to four-month highs against the Swiss franc probably washed out hordes of speculators from long franc positions that were the quintessential euro break-up punt.

Safe-haven U.S. and German bond yields are inching up, although background noise – coronavirus, U.S. politics and Hong Kong — may cap moves. U.S. protests and rioting that are forcing retailers to shutter stores might be another setback to the economy. But southern European borrowing costs are declining — the 10-year Italian bond premium vs Germany has narrowed to around 190 bps, from mid-March peaks near 280 bps.

Keep an eye today on the final round of UK-European Union trade negotiations before the end-June deadline to request an extension of the Brexit transition period. Brexit jitters are evident in extremely high pound volatility of close to 10%.

In European corporate news, aside from the MasMovil bid, airline Lufthansa’s bailout was agreed. Also, the European Central Bank is expected to clear Italian bank Intesa Sanpaolo’s proposed takeover of smaller rival UBI Banca. (Editing by Larry King)

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