Market Commentary - June 22, 2020
Last week’s losses retrace on back of news that Beijing only had 9 new (reported) cases. US and Asian indices trade higher from Friday’s close. AUD then NZD & GBP outperform to start the week. EURUSD trades up. Gold hit monthly highs as investors seek the safe-haven metal over concerns there will be a delay in global economic recovery
AUD is in focus. Bloomberg reports that Australia’s second-most populous state has tightened coronavirus controls following a spike in cases last week. Victoria extended a state of emergency by four weeks to July 20, halved the number of visitors allowed in homes to five and delayed a planned increase in the size of gatherings in cafes, restaurants and pubs.
JPY is key to watch. There are 111 countries/regions on Japan’s no entry list. However, Japan may follow suit like several other Asian countries to have a "travel bubble", which would open the country to travellers from places with similar coronavirus safety measures. So far, the list will likely include Australia, New Zealand, Thailand and Vietnam.
THB -BoT posted that commercial banks must freeze interim dividend payments to shareholders and suspend stock buybacks to preserve capital. The Baht continues on its solid run however lack of direction and liquidity concerns remain prevalent. BoT have suggested that they are ready to step up measures to curb THB strength. The Finance Ministry is worried about the fast rising baht, assuring investors the baht is only strengthening in line with regional currencies.
Figure 1 (Source: Reuter's Eikon): Thai Baht strengths against USD.
ZAR Finance Minister Tito Mboweni will provide covid19 updates in a ‘mini Budget review’ this week. CPI figures are also closely watched- a slowdown in April CPI to 2.9% YoY, from 4.1% YoY in March.
TRY- The closely monitored Lira has been hit hard by the pandemic. Turkey's central bank suspended until year end a requirement that banks with a real annual loan growth rate above 15% must keep their adjusted rate below 15%, so they can keep credit flowing as the economy reopens from a coronavirus lockdown. Turkey's central bank is expected to trim its policy rate by 25 basis points to 8%, a Reuters poll showed on Friday, a relatively limited cut in an aggressive easing cycle that has lasted nearly a year.
Figure 2 (Source: Reuter's Eikon): XAU hits highs last seen mid-May.
- EU Economic Summit last week saw piecemeal steps towards an agreement on an economic crisis relief package. Consensus amongst members is the need for a 750 bn EU Recovery Fund, however opinions differ as to the funds’ size, how funding will be allocated, whether funding will be in the form loans or grants, timing of the repayments for the former and the fiscal conditions for the later. Whilst Germany hopes for an agreement by July end, Chancellor Merkel faces continual opposition from the ‘Frugal Four’. Austria, Denmark, Netherlands and Sweden. Of whom have voiced unfairness that after years of budgetary prudence now once again have to foot the bill for fiscally iresponsible nations such as France, Greece, Portugal and Spain
- Conflicting retail sales figures paint contrasting pictures between UK and Canada. Whilst Great Britain rebounds 12% MoM from -18% MoM, the later suffered worse than expected figures, accelerating declines to -26.4% as opposed to a -15% market forecast. Statistic Canada is hopeful retail sales will rebound in the coming months, as many retailers start or expand their e-commerce presence. Online sales figures are optimistic as they reached a record high of $3.4 billion
Scheduled economic events this week are somewhat muted compared to last week. Key events come from euro area PMI prints and then central banks publication of the ECB accounts and of the US Fed bank stress test results. Chinese banks will be closed Thursday in observance of the Dragon Boat Festival.
Headliners to watch
- Bank of Canada Governor Tiff Macklem will speak about monetary policy in the context of COVID-19
- Turkey's Central Bank is expected to cut rates by 25 basis points to 8%
- French Flash Services PMI expected to rebound from 31.1 to 44.9
- German Flash Manufacturing PMI expected to rebound from 36.6 to 41.5
- German Flash Services PMI rebound from 32.6 to 41.7
- GBP Flash Manufacturing PMI expected to increase from 40.7 to 45.2
- GBP Flash Services PMI expected to rebound from 29.0 to 39.1
- US Flash Manufacturing PMI expected to rise from 39.8 to 50
- Key PMI data will be released tomorrow. It is expected to impact markets as EU prepare to reopen restaurants and shops and recover.
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Topics: Market Commentary