Second-half and Second-wave
Asian stocks kicked off the week on a strong positive note; hopes for more policy support being pretty much the only explanation to the early week optimism. The economic calendar is modest, and many market participants will probably extend their long weekends. The ISM Non-Manufacturing Index and jobless claims data will be the most important.
Below are thumbnail sketches of the events and data that shape the macro picture.
Country
US-China jitters return
• DXY comes under pressure and tests the 97.00 mark
• The progress of the COVID-19 in the US remains in the centre of the debate amidst efforts to keep the re-opening of the economy well in place. As always, the broad risk appetite trends emerge as the main driver for the dollar in the short-term coupled with omnipresent US-China trade and geopolitical effervescence.
• US-China jitters return to the markets as sentiment driver. Market participants seem to have left behind the unremitting advance of the coronavirus pandemic in the US and fresh outbreaks in Europe as well as renewed US-China concerns and chose to see the glass “half full” in light of the ongoing re-opening of the economy and positive results in fundamentals on both sides of the ocean.
• ISM Non-Manufacturing, Markit’s Services PMI next on tap
• In the US docket, the ISM Non-Manufacturing will be in centre stage later today as US markets return to activity following Friday’s Independence Day holiday. Further data releases include the final Markit’s Services/Composite PMI for the month of June
UK prepares of negative interest rates
• Andrew Bailey, Governor of the Bank of England, sent a letter asking commercial banks to prepare for negative interest rates, according to the Sunday Times.
• The BOE added to its QE program but refrained from setting sub-zero borrowing costs. Brits returned to the pubs on Saturday as the country continues opening up. GBP/USD is holding up around 1.25.
Germany companies fear survival
• Germany’s influential IFO said on Monday, about one fifth (21%) of the German companies see their survival threatened by the coronavirus crisis.
• Released this morning, the German factory orders improved 10.4% in May, lower than 15% expected by analysts. Due later today, the European retail sales may have rebounded 15% in May, following more than 11.7% in the previous two months.
Spain has imposed two localized lockdowns
• Spain has imposed two localized lockdowns to bring COVID-19 outbreaks under control. Christine Lagarde, PResident of the European Central Bank, said that the eurozone faces two years of disinflation. She vowed to keep supporting the economy. The risk-on mood is pushing EUR/USD toward 1.13.
The EU Summit
• With the EU Summit on July 17, I think it is logical to stay bullish euro until that date, and unless there is some substantial negative news development, its a case of holding the course. The odds seem heavily tilted toward a European agreement. I think the market will price the positive outcome more aggressively as the date nears.
• Additionally, the rebound from the corona-crisis in Europe has been much smoother than the US due to better virus control and a much smaller increase in unemployment rates.
• Also, the long stretch of EU stock market underperformance and years of outflows is starting to reverse. With the euro relatively cheap against the dollar, more sizable EU inflows from the US will likely push the euro higher.
• Discussions are starting to surface on how the US dollar will vote for either a Trump or Biden presidency. While it is too early to price in a ton of election risk, forex optionality behaviors have picked up around the November election date. Given the polling numbers are showing a positive Biden skew it harmful for US stocks and the US dollar given his proposal to reverse half of President Trump’s cut in the corporate income tax rate from 35% to 21%
Australian Data
• Australia has closed to the border between Victoria and New South Wales following the outbreak around Melbourne.
• Chinese media has said Beijing will retaliate against Canberra with more tariffs as Australia is contemplating hosting Hong Kong residents. Nevertheless, AUD/USD is benefiting from the risk-on mood, zooming in on 0.70.
Japan’s relaxing restricitions
• The Japanese Economy Minister, Yasutoshi Nishimura will consult with experts on relaxing restrictions on July 10.
• Meanwhile, Japanese Ambassador to Russia Toyohisa Kazuki has announced measures that are “aimed at consistent prevention of the infection spread and at minimization of the pandemic’s effect on the economy.”
• Stocks in Tokyo gained 1.75%
Optimism for China
• Markets are optimistic after Chinese media is bullish about the recovery and the stock market. The rise in Asian stocks is carrying S&P futures up and weighing on the safe-haven dollar and yen.
• Coronavirus continues increasing at a worrying pace and US data is awaited.
• China has also warned Canada regarding “meddling” in Hong Kong and warned it could backfire against the Canadian economy. The countries are already at odds as Huawei CFO is held in Vancouver, awaiting extradition to the US. USD/CAD is trading steadily above 1.35.
• China’s Securities Times is saying that a healthy bull market is more important to the economy than ever while China International Capital Corp is projecting a doubling of shares within the next 5-10 years. Bloomberg reports that the term “bull market” has is ten times its 90-day average on Chinese media according to the Baidu Index.
Market
Oil stable
• OPEC and its allies have not discussed extending their record 9.7 million b/d production cut accord beyond July, suggesting they might be more inclined to let the curbs ease down to 7.7 million b/d starting in August, as planned. With the JMMC scheduled to meet on July 15, traders could remain a bit cautious until then.
• It will take at minimum two weeks for the July 4th COVID-19 curve testing data to roll, and with the JMMC hitting the radar, we could remain sandwiched in more of the same range trade mentality until we get a flattening on the US virus data.
Gold stable
• Gold is on the verge of testing the psychological $1800 level. The market has been brought higher by continued investor interest amid falling real rates and coronavirus concerns. The pullback from recent highs this week has likely been a positive for risk market double function of favorable vaccine trial results and robust economic data, signaling a continuation of the recovery.
• But it does not seem that anything matters for gold as gold remains bid on a stronger dollar and higher equities. Gold investors could be looking through this economic sweet spot in the recovery anticipating a downswing in the data, which would then be accompanied by even more stimulus.
Here’s a look at all the important market-moving factors for the week:
Week Ahead
All times listed are EDT
Monday
4:30: UK – Construction PMI: expected to surge to 47.0 from 28.9.
10:00: US – ISM Non-Manufacturing PMI: seen to pop to 50.0—the red line between expansion and contraction—from 45.4.
Tuesday
00:30: Australia – RBA Interest Rate Decision: forecast to keep rates at 0.25%.
10:00: US – JOTLs Job Openings: probably receded to 4.850M from 5.046M.
10:00: Canada – Ivey PMI: May’s print came in at 39.1.
Wednesday
Tentative: BoE MPC Treasury Committee Hearing
10:30: US – Crude Oil Inventories: anticipated to surge to -0.710M from -7.195M.
Thursday
8:30: US – Initial Jobless Claims: expected to decline to 1,375K from 1,427K previously.
Friday
8:30: US – PPI: seen to remain flat at 0.4%.
8:30: Canada – Employment Change: expected to soar to 800.0K from 289.6K.
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.
Chat with us to know more: wa.me/971581958582
Register to open your account: http://bit.ly/OpenFxAccount
Join Our Telegram Channel: https://t.me/ForexFundManagers
Subscribe to Our YouTube Channel: https://youtu.be/AnTlQd-FQxc