Market Commentary - July 16, 2020
Markets mixed as Asia indices retrace gains from Wall Street yesterday. News of an early phase vaccine for COVID-19 helped lift markets amid worrying concerns containment has been futile with Tokyo recently put on the highest alert level. Whilst ever-increasing geo-political turmoil threatens with greater uncertainty. Right after signing the Hong Kong Autonomy Act, the Trump administration back-tracked against sanctioning Chinese officials and withdrawing additional visa requirements for Chinese students.
Figure 1 (source: Refinitiv Eikon): Asian currencies trade lower- THB weakens the most.
- Bank of Japan lowered its economic growth forecasts but keeps the interest rates unchanged at -0.1. The bank’s policy board expects the Japanese economy will be between 4.5% and 5.7% in the coming fiscal year. It maintained to keep interest rates at low levels until risks keeping it from 2% inflation goal.
- OPEC and allies led by Russia have reached an agreement to a record cut in output to increase oil prices in the coronavirus pandemic. The spread of the coronavirus has lowered the demand for fuel and thus driven down the oil prices. The oil industry is vulnerable to low oil prices due to its high cost of maintenance.
- The overnight rate in Canada will remain low at 0.25%. The Bank of Canada said the economic activity in Canada will not return to pre-pandemic levels until 2022. The interest rate will stay low for at least two years.
- The employment change in Australia increase from -264K to 219K, which is much better than the expected 106K. The unemployment rate in Australia drop from 7.1% to 7.4%. The unemployment rate is the highest level 22 years even the jobs grew far much better than expected as people were looking for a job.
- The China GDP increase from -6.8% to 3.2%, which is better than the expected 2.2%. The data shows that China will be the first major economy to have positive economic growth, where US, Europe and Japan are still struggling to reopen the economies.
Headliner to Watch
- ECB officials meet today with markets expecting no change to the cash rate or increases in the Pandemic Emergency Purchase Program. The ECB had reduced bond purchases last week to its slowest pace. Since previous discussions, the program had been increased by 600 billion Euros, totalling a mammoth 1.35 trillion euros in size. Recent macroeconomic data alluding to a less bleak outlook as figures rebound beyond economic consensus, with easing financial conditions and surging equity markets. Markets look for reassurance that the ECB is not looking for an early exit.
- Of miscellaneous note, Bank of Thailand also to announce monetary policy. Expectations are 50/50 as to whether the central will cut its cash rate by 25 basis points. Falling inflation is amongst the members concern.
- Global employment conditions set to improve with the UK and US expected to experience decreasing claims in unemployment benefits. For the former, claimant count change to decline to 250K from 528.9K. On a similar note, US unemployment to 1250K from 1314K. A re-opening economy also sees UK unemployment increasing to 4.2% from higher labour participation. Canadian ADP employment change to remain stable.
- After recording breaking rebounds, US retail sales and Philly Fed manufacturing to normalise back to pre-pandemic levels. Retail sales expected to slow to 5% from 17.7%. Manufacturing index declining from 27.5 to 20. Economist weary though as this month’s figures did not consider State’s reversing certain re-opening measures.
- Of interest, Bank of England to release Q2 Credit Conditions Survey today. Previous Q1 report did not account for the effects of the Coronavirus crises. Drastic change in credit and lending conditions to households and businesses is expected.
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