Market Commentary - July 30, 2020

Posted by Kevin Jock on Jul 30, 2020 4:52:22 AM

     Initial relief in Global indices with the Fed pledging a “full range of tools” to support America’s lethargic economy. Nonetheless, much of the optimism fizzled with Asia opening mixed. Weighed down by the constant stream of Coronavirus updates. Europe and Hong Kong face alarming surges in cases after easing restrictions. Australia on tilt with additional state border closures in Queensland. Fatalities in the US topped 150,000 as California records 200 deaths in a single day.

     The Turkish Lira continues to weaken as the Coronavirus brings to the forefront existing structural deficiencies within the nation. Attempts to control the impossible trinity of a pegged rate, free-flowing capital and independent monetary regime has left the country with long standing current account deficits, high inflation, and bubble-inducing low interest rates. Cheap money supported President Erdogan’s reign. As much of the economy’s prosperity relied heavily on debt-financed construction and consumption. Whilst the virus resulted in an economic crisis, misguided policy assumption will further push the country into financial collapse.

Figure 1 (Source: Refinitiv): EURTRY Weekly- Euro settling at record highs against the Lira as investor capital flee a troubled nation.

Headliner to Review

  • The Federal Reserve promises to use its full range of policy tools to assist the economy and keep the interest rates near zero during the coronavirus pandemic. Federal Reserve chairman Jerome Powell said,” The path of the economy will depend significantly on the course of the virus.”
  • Singapore’s Central Bank and US Federal Reserve have extended $60 billion swap facility to March 2021. The arrangements with central banks help provided a critical backstop and maintain stability of financial markets during the coronavirus pandemic.
  • Negotiations continue in Congress. Democrats attempting to have a deal to provide more assistance to those hurt by the coronavirus pandemic. With further extensions to the $600-per-week unemployment benefit for several more months. Republicans countered arguing that this schedule discourages workers to seek a job. Instead the party proposed cutting the unemployment assistance to $200 a week.
  • In light of all of this uncertainty, US property markets continues to post remarkable stats, with pending homes sales beating expectations of 15.6% growth with 16.6%
  • Hong Kong’s economy contracted for the fourth consecutive quarter, with GPD decreasing 9%. It is worse than expected. The reason is that COVID-19 pandemic continues to be an issue in the city.

Headliner to Watch

  • For the data ahead, most analyst forecast a world officially sliding into recession. Some nations more of a steep fall than others. United States, Germany and France set to post Q2 GDP figures. Following on from Q1, consecutive declines is expected
    • US advance QoQ GDP from -5% to a historic contraction of -34.5%
    • German prelim QoQ GDP from -2.2% to -9.0%
    • France flash QoQ GDP -5.3% to -15.2%
  • Global employment figures giving further weight, recent months positive stats were nothing more than a blip.
    • The recovery in America’s labour market staggers with unemployment claims expected to remain relatively unchanged.
    • Euro unemployment rate to set to increase from 7.4% to 7.7%
    • Japan unemployment rate expected to rise from 2.9% to 3.0%
  • China’s manufacturing and non-manufacturing figures continue to teether on expansion territory. With figures expected to remain relatively unchanged.

 

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Authors:
Antony Tan
Ben Li
Kevin Jock

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