Market Commentary - July 24, 2020
Global indices lower on a foray of pessimistic news. Asia led the decline as China steps up geopolitical tensions. Among trade disputes and tit-for-tat consulate closures, China further escalates by proposing to stop recognizing UK oversea passports held by Hong Kong residents. Hong Kong implements additional quarantine and social distancing measures whilst Australian state NSW considers locking down once again as bordering Victoria experiences its deadliest day. With 300 infections and 6 deaths. Wall street not unaffected, led by poor earnings from technology and consumer goods, a deteriorating labor market and a Senate in disarray, struggling to find a balance on a top-up stimulus package.
Gold continues to be the biggest winner on the back of increasing economic and geopolitical risk with investors seeking a hedge against uncertainty. Nearing record highs of 1920 set nine years ago.
Figure 1 (source: Refinitiv Eikon): Gold nears record highs
America is showing signs of buckling as yesterday’s US unemployment claims were worser than expected. Increasing by 1.416m as opposed to market consensus figures of 1.3m increase. With an already stalling labour market, the unemployment claims rose for the first time after 15 weeks of continual declines as the spread of the coronavirus outbreak remains uncontained. The lack of progress in the data means that there are no job gains. In the weak job market, it is important that the government can help workers in the stimulus package, which is being discussed now.
As US orders China to close one of its consulates, the Asian markets are set to open lower mostly today. China said the move by the US to close its consulates had severely harmed the relationship and warned of retaliatory measures.
CB Leading Index m/m decreased from 3.2% to 2.0%, which is a bit worse than the expected 2.1%.
Russia’s Central Bank members will deliberate today on monetary policy, predicted to cut benchmark interest rates by 25 basis points to 4.25%. The Russian economy shrinking 10% in the second quarter. Impacted by social lockdowns attempting to prevent the spread of Coronavirus and a weak oil market held down inflation. Leaving room for cheaper lending and further rate cuts.
Headliners to Watch
- Across EU, UK and US, an array of manufacturing and services PMI will be reported today.
- Europe flash manufacturing and services PMI barely back in expansion territory at 50.0 and 51.0 respectively. Pulled higher by French and German figures. France looking to record 52.3 and 53.1 whilst Germany at 48 and 50.4
- UK expected post flash manufacturing and services PMI increases of 50.1 to 52.0 and 47.1 to 51.4.
- US figures expected to anno1.0 from 47.9unce third consecutive increase and back into expansion territory to 52.0 from 49.8 and 5
- German retail sales expected to normalize but still above normal levels with improving consumer sentiment and ever-increasing expectations of a faster economic recovery. Market consensus sees a decrease to only 8.3% MoM from 12.0%.
- US new home sales edging higher back to pre-pandemic levels from 676K to 700K. With record low rates and excess money supply American households find themselves a grand opportunity to continue purchasing property.
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