EQUITY MARKETS

STISPXDJIANasdaqRussell 2000Stoxx 50Nikkei SHcompHSI
17/7-1.671.242.28-1.763.551.351.91-5.002.36
10/70.601.750.964.78-0.64-0.720.657.31-0.10
3/70.312.611.505.003.033.879-1.725.820.83
Week-on-Week % Change in Equity Indices

Source: Bloomberg

Asian Equity Market

The Asian market traded within a tight range of +/- 2% throughout the week. However, SHCOMP saw significant losses on Thursday with a -4.5% drop. According to China’s state media, the sharp fall was a normal adjustment as stated in China Securities Journal.

The Nikkei broke out of its consolidation pattern to close at the highest since 11 June on Wednesday. However, the rise was short-lived, and it ended the week in the negative range.

Source: Bloomberg

European Equity Market

The European market indices moved in tandem throughout the week – this came despite the higher Euro. Outsized gains for most European bourses came on Wednesday as most were higher by almost 2% as virus vaccine hopes proved to be the panacea for the escalating US-Sino tensions. The prospect of an agreement at the weekend EU summit was also a boost for European shares.

Source: Bloomberg

US Equity Market

The US equity market began the week with a fall after the CDC reported 60,000 cases, and California Governor Gavin Newsom tightened reopening in 30 counties saying cases continue to spread at an alarming rate. The S&P 500 declined 0.94%, while Nasdaq also fell 2.1% as VIX surged to 32.19.

However, the concerns were short-lived as Moderna’s vaccine hopes aided the bounce for US stocks. DJIA led equities indexes, paced by gains in energy after initial OPEC members said they intend to comply with promised oil-production cuts on Friday.

Source: Bloomberg

FIXED INCOME

The yield curve flattened as stocks came off their highs with a decrease in 2.63-2.82 bps for long-term yields. After data showed that core inflation was well below the Fed’s target in June, the US Treasury Yields dipped on Tuesday. The 1D bps change has been moving within a range throughout the week as vaccine hopes were off-set by the news of the rapid spread of cases at the end of the week.

10Y Bunds yield fell 3bps, and other Eurozone yields fell around 2-5 bps as investors retreated to Euro govies due to US-Sino tensions and lockdown restrictions in America.

Source: Bloomberg

COMMODITIES

Copper gained another +2.48% on Monday, with the curve tightening substantially. There is a possibility of a strike as Antofagasta’s Zaldivar operations voted to reject a recent wage offer. Base metals had corrected following several days of gains, especially in the copper and zinc contracts. Copper fell -1.1%, but this was off lows of approximately -2%, with the copper cash-3 months falling back into contango. The prospect of cooling measures implemented in the Chinese stock market and US-Sino tensions took a toll on copper.

Silver led the way for precious metals as investors looked to replicate Gold’s move to the upside.

The longer the oil volatility stays lower, the more tradeable oil could be going forward.

Source: Bloomberg

CURRENCIES

DXY

The dollar edged lower on Monday as investors look to US corporate earnings and upcoming retail data to gauge whether guarded optimism on the economic outlook was justified. The Dollar further fell, and on Wednesday, it fell to a one month low at a value of 96.08. It rose temporarily as worries about the number of cases spurred a broader risk-off move.

Source: Bloomberg

AUD/USD

During the first half of the week, AUD benefited significantly amid vaccine hopes. However, it was unable to maintain the highs of 0.700 and eventually fell against the Dollar over the week.

Source: Bloomberg

EUR/USD

Throughout the week, the Euro was the biggest beneficiary in hopes of an EU stimulus package being rolled out during the EU summit. By the end of the week, the Euro rose to just under a 4-month high.

Source: Bloomberg

GBP/USD

The pound weakened against the Dollar throughout the week despite the weak Dollar. This could be due to the lagging economic results with a less than expected GDP, industrial production, services output, and construction. The negative sentiments were heightened due to speculation over negative interest rates by the BoE.

Source: Bloomberg

USD/JPY

The pair has been trading within a tight range throughout the week, where vaccine hopes had muted concerns over the resurgence of Covid-19 cases. Investors have an appetite for riskier assets now.

Source: Bloomberg

XAU/USD

Gold oscillated around the USD1800/ounce. With gold volatility steadily declining, changing outright longs to call options could make sense here to play the upside in gold.

Source: Bloomberg

Photo by Nick Pampoukidis on Unsplash

HIGHLIGHTS OF THE WEEK

Americas

United States
  • The US posted a budget deficit of $864.1bn in June, the largest on record, driven by a combination of surging spending and plummeting
    revenue primarily due to unprecedented fiscal stimulus efforts in response to the pandemic
  • On a y/y basis, outlays rose 223% while receipts declined 28%. Over half of the increase in the deficit relative to the June 2019 figure of $8.5bn was due to outlays for the Small Business Administration (SBA) related to the Paycheck Protection Program (PPP)
  • The US, initial jobless claims were relatively steady at 1.30mn for the week ending 11 July, down slightly from 1.31mn
  • Core (control) retail sales rose 5.6% m/m in June, above expectations, with strong gains in many discretionary components such as furniture, electronics, sporting goods, and clothing stores
  • Trump administration has rescinded new rules on international students studying online after lawsuits filed by Harvard and MIT, but President Trump has signed into law a bill sanctioning Chinese officials who contributed to the erosion of Hong Kong autonomy
  • Michael Pompeo announced new visa restrictions for some Huawei
    employees, in a mostly symbolic move. Pompeo added that Washington continues to have conversations with Beijing, but “we have to deal with China as it is, not as we wish it to be.”
  • Trump said he plans to approve a health-care plan, an immigration plan and “various other plans” in coming weeks as a series of polls nationally and in swing states show the president trailing Democrat Joe Biden
  • JPMorgan Chase & Co., Citigroup Inc., and Wells Fargo & Co. set aside almost $28 billion in loan loss reserves to levels not seen since the 2008 financial crisis and higher than analysts had estimated. All three lenders also said their economic outlook is deteriorating as Covid-19 rages through. Wells Fargo reported its first quarterly loss since 2008 and cut its dividend, and Citigroup also fell, whereas JPMorgan rose on a record trading revenue

Europe

  • In UK, Bloomberg reported that BoE Governor Andrew Bailey told Conservative Party lawmakers that UK interest rates are likely to stay low for long and added that the central bank “will do everything we can to support the economy”
  • The ECB kept its policy settings unchanged and committed
    to its current monetary policy accommodation stance, with president Lagarde mentioning that it will spend the full pandemic bond-buying
    program
  • In the EU leaders’ summit, the leaders failed to reach an agreement over the weekend on the recovery fund amid disagreement over a large package with primary grants or a smaller package with a higher proportion of loans. Angela Merkel and Emmanuel Macron walked out of a meeting with Dutch Prime Minister Mark Rutte on Saturday, after a dispute over how much of the package should be disbursed as grants and how much as loans. Germany and France are said to have insisted at least 400 billion euros should be handouts. Hawks from northern Europe pushed for a much lower figure. Reuters reported that Christine Lagarde said the EU financial aid plan should be ambitious even if it takes more time

Asia

China
  • US-Sino tensions may re-escalate after the US denounced China’s claims to the South China Sea as “unlawful.”
  • China reported on Thursday that 2Q GDP growth rebounded to 3.2% (the weakest on record), but the Shanghai Composite Index still fell 4.5% in its largest one-day drop since early February
Hong Kong
  • Hong Kong added a record of 108 infections on Sunday, adding to an increasing number of untraced and local inflections. The city government will require civil servants to work from home to stem the spread of the infections. The city plans to mandate wearing of masks in all shared indoor areas, not just on public transport, and extended restaurant restrictions
Japan
  • BoJ kept its policy settings static Wednesday, though hinting they are still ready to move further if a resurgence in infections derails the
    recovery. Governor Kuroda seeing no change to its inflation goal at this juncture but warned that the outlook was highly uncertain. The BoJ tips growth to contract 4.7% in the current FY before recovering to 3.3% in the next FY, while consumer prices will decline 0.5% this year and stay below the 2% target through early 2023
Singapore
  • In Singapore, 2Q20 GDP growth shrank a record 41.2% q/q saar (-12.6% y/y) due to the Covid-19 pandemic and Circuit Breaker
    restrictions, tipping the Singapore economy into technical recession even though 1Q20 GDP growth was also revised higher to -3.3% q/q
    saar (-0.3% y/y)
  • Monetary Authority of Singapore’s Ravi Menon warned that the Singapore economy remains dire and even if subsequent waves of infection are more limited globally, it is not clear whether confidence in resuming normal economic activity will be restored
  • Trade minister Chan Chun Sing noted the most significant uncertainty is the global external demand and more stimulus may not help

ECONOMIC CALENDAR

20/7/2020

7:50  JPYAdjusted Trade Balance
7:50  JPYExports (YoY) (Jun)
7:50  JPYMonetary Policy Meeting Minutes  
7:50  JPYTrade Balance (Jun)
9:30  CNYPBoC Loan Prime Rate
14:00  EURGerman PPI (MoM) (Jun)

21/7/2020

7:30  JPYNational Core CPI (YoY) (Jun)
9:30  AUDRBA Meeting Minutes  
10:30  AUDRBA Governor Lowe Speaks  
20:30  CADCore Retail Sales (MoM) (May)
20:30  CADNew Housing Price Index (MoM) (Jun)
20:30  CADRetail Sales (MoM) (May)

22/7/2020

4:30  USDAPI Weekly Crude Oil Stock
8:30  JPYServices PMI  
9:30  AUDRetail Sales (MoM)
20:30  CADCore CPI (YoY) (Jun)
20:30  CADCore CPI (MoM) (Jun)
20:30  CADCPI (MoM) (Jun)
21:30  USDSeevol Cushing Storage Report
22:00  USDExisting Home Sales (Jun)
22:00  USDExisting Home Sales (MoM) (Jun)
22:30  USDCrude Oil Inventories
22:30  USDCushing Crude Oil Inventories

23/7/2020

9:30  AUDNAB Quarterly Business Confidence
13:00  SGDCPI (YoY) (Jun)
14:00  EURGfK German Consumer Climate (Aug)
18:00  GBPCBI Industrial Trends Orders (Jul)
20:30  USDInitial Jobless Claims

24/7/2020

14:00  GBPCore Retail Sales (MoM) (Jun)
14:00  GBPCore Retail Sales (YoY) (Jun)
14:00  GBPRetail Sales (MoM) (Jun)
14:00  GBPRetail Sales (YoY) (Jun)
15:15  EURFrench Manufacturing PMI (Jul)  
15:15  EURFrench Services PMI (Jul)  
15:30  EURGerman Manufacturing PMI (Jul)  
15:30  EURGerman Services PMI (Jul)  
16:00  EURManufacturing PMI (Jul)  
16:00  EURMarkit Composite PMI (Jul)  
16:00  EURServices PMI (Jul)  
16:30  GBPComposite PMI  
16:30  GBPManufacturing PMI  
16:30  GBPServices PMI  
21:45  USDManufacturing PMI (Jul)  
21:45  USDMarkit Composite PMI (Jul)  
21:45  USDServices PMI (Jul)  
22:00  USDNew Home Sales (MoM) (Jun)
22:00  USDNew Home Sales (Jun)
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