Chinese Shares Slump

The virus is once again raising the prospects of slowing the economic recovery that was unevenly unfolding.

The preliminary July PMI for Australia, UK, France, and the US was disappointed. Expectations for the trajectory of monetary policy are being impacted. Consider that the implied yield of the December 2022 Eurodollar futures fell to 40 bp in the middle of last week from 55 bp on July 1. A similar futures contract in the UK, the December 2022 short-sterling implied yield fell from 58 bp in mid-July to almost 40 bp on “Freedom Day” as the UK dropped all social restrictions and mask requirements. The implied yield of the December 2022 Bank Acceptances in Canada fell 20 basis points from July 14 to nearly 105 bp ahead of the weekend. In Australia, the December 2022 bill futures contract’s implied yield fell a little over 60 bp on July 6 to 36 bp last week.

Here are the key market moving factors for the week:

 The US

• The day after the FOMC meeting concludes, the US reports its first estimate of Q2 GDP. The median forecast in Blomberg’s survey has crept up in recent days to 8.5% at an annualized pace, up from 6.4% in Q1. The NY Fed’s GDPNow model puts growth at 3.2%, while the Atlanta Fed’s model is closer to the market at 7.6%, while the St. Loius Fed Nowcast stands at 9%.
• Even before this surge in the virus in the US, where about half of the adult population is fully vaccinated, we suggested there was a reasonable chance that Q2 marks the peak in growth. Fiscal policy will increasingly be a drag, pent-up consumer demand will be satiated. Monetary policy is near a peak.
• The US will report June personal income and consumption figures ahead of the weekend, but the data will already be embedded in the GDP estimate. On the other hand, the PCE deflator, which the Fed targets rather than the CPI, may draw attention. It is expected to post a sharp 0.7% increase on the month for around a 4.2% year-over-year. It rose by 0.4% in May and a 3.9% year-over-year rate. The core rate, which the Fed does not target but makes references from time to time, is expected to accelerate to 3.7% from 3.4%.
• We have also underscored the restrictive impact of doubling the oil price since the end of last October.

The UK

• ith new Covid-19 variants spreading rapidly across Europe, economic growth projections have come under question as more people are told to self-isolate.
• In the UK, essential food retailer staff will be excluded from the 10-day mandatory quarantine if someone has been in close contact with a Covid-positive person as supermarkets were showing increasing shortages in goods.
• On the other hand, a strong start to the Q2 earnings season has kept equities supported and is helping to dissipate some of the negative sentiment in markets.
• Central banks are also playing a key part with an array of mixed messages from policy setters as inflation rises rapidly but growth remains a key concern.
• Next Wednesday will see the Federal Reserve deliver its last monetary policy meeting before the Jackson Hole symposium in August.

Europe

• The ECB’s dovishness likely minimizes the impact of the preliminary July CPI figures. In July 2020, the eurozone saw consumer prices fall by 0.4% on the month and again in August. This speaks to a likely acceleration of the year-over-year pace from 1.9% in June. Also, note that since at least 2000, prices gained less in July than in June (and consistently rose more in August than July). The monthly increase in June was 0.3%.
• The Bloomberg survey shows economists anticipate sharp month-over-month declines in Italian and Spanish prices. French CPI is also expected to have fallen slightly in July. German inflation may have ticked up. These considerations suggest the year-over-year rate may have edged above 2%.
• The eurozone will provide its first estimate of Q1 GDP at the same time as the CPI figures on July 30.

AUSTRALIA

• AUD/USD faces a batch of key event risks going into the end of July as Australia’s Consumer Price Index (CPI) is anticipated to hit a 13-year high, while the Federal Reserve appears to be on track to adjust the forward guidance for monetary policy.

JAPAN

• The safe-harbour yen and dollar started the week firmer against riskier currencies like the Aussie as rising COVID-19 cases and a decline in Asian equities set a cautious tone ahead of the Federal Reserve’s meeting this week.
• The yen rose about 0.5% to 81.08 per Australian dollar on Monday, while the dollar gained 0.2% to $0.7351 per Aussie, approaching an almost eight-month high of $0.72895 reached last week.
• Against the dollar, the yen added 0.2% to 110.32, helped by a decline in U.S. Treasury yields.

CHINA

• Chinese shares slumped on Monday as investor worries over the impact of government regulations kneecapped the education and property sectors, after Beijing barred for-profit tutoring in core school subjects.
• The searing sell-off sent Hong Kong-listed Scholar Education Group shares crashing more than 43% in morning trade. Hong Kong stocks of New Oriental Education & Technology Group Inc lost over a third of their value after U.S. shares plummeted more 50% on Friday. The company provides tutoring and test preparation services in China.

Market Overview:

 Gold

• Gold was up on Monday morning in Asia, alongside a U.S. dollar that is holding firm and investors looking ahead to the U.S. Federal Reserve’s policy decision, to be delivered by the Federal Open Market Committee (FOMC) later in the week.
• Gold futures were up 0.28% to $1,806.90 by 12:52 AM ET (4:52 AM GMT), slightly above the $1,800 per-ounce psychological level. The dollar, which usually moves inversely to gold, inched down on Monday morning but remained near multi-month highs.

Oil

• Oil was down Monday morning in Asia but remained little changed even as increasing numbers of COVID-19 cases globally continue to cloud the fuel demand outlook.
• Brent oil futures fell 1.16% to $72.59 by 1:31 AM ET (5:31 AM GMT) after rolling over to the Oct. 21 contract on Jul. 25, 2021. WTI futures slid 1.25% to $71.17.
• “We saw an overreaction in the market last Monday, and like all other technical corrections so far oil’s downturn has typically proven short lived… bargain hunters came in droves when Brent got below $70 and the economic demand for energy looks robust,” OCBC Bank economist Howie Lee told CNBC.

Below are the major market moving events for the week:

All times listed are EDT

Monday

4:00: Germany – Ifo Business Climate Index: expected to climb to 102.1 from 101.8.

10:00: US – New Home Sales: seen to rise to 800K from 769K.

 Tuesday

8:30: US – Core Durable Goods Orders: anticipated to grow to 0.8% from 0.3%.

10:00: US – CB Consumer Confidence: forecast to fall to 124.1 from 127.3.

21:30: Australia – CPI: probably edged up to 0.7% from 0.6% QoQ and jumped to 3.8% from 1.1% YoY.

 Wednesday

8:30: Canada – Core CPI: likely to remain flat at 0.4%.

10:30: US – Crude Oil Inventories: previous reading showed a build of 2.108M Bbl.

14:00: US – Fed Interest Rate Decision, FOMC Statement: the central bank is expected to hold rates at 0.25%.

 Thursday

3:55: Germany – Unemployment Change: predicted to rise to -25K from -38K.

8:30: US – GDP: forecast to soar to 8.6% from 6.4% QoQ.

8:30: US – Initial Jobless Claims: last week’s print disappointed, coming in at 419K.

10:00: US – Pending Home Sales: seen to crash to 0.5% from 8.0%.

 Friday

2:00: Germany – GDP: predicted to surge to 2.0% from -1.8%.

5:00: Eurozone – CPI: expected to edge up to 2.0% from 1.9%.

8:30: Canada – GDP: likely to remain flat at -0.3% MoM.

21:00: China – Manufacturing PMI: anticipated to edge lower to 50.8 from 50.9.

 

Based on the above factors and the events lined up for the week, the analyst at RvR Ventures suggests you to Trade responsibly; invest only as much as you can lose. All the profits and losses due to the above data are your own personal responsibility. Kindly practice money management & risk mitigation while trading.

 

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