EQUITY MARKETS

Week-on-Week % Change in Equity Indices

Source: Bloomberg

Asian Equity Market

It was a mixed week for Asia, and Nikkei was closed for trading on Thursday and Friday. The week began positively for most Asian indices. However, by midweek most indices faced a plunge where STI closed below the 2600 level, which it found difficult to maintain north of. Asia market opened lower on Friday as China vowed to retaliate against the US.

Source: Bloomberg

European Equity Market

Aside from the UKX, European indices traded in tandem with strong gains with the DAX as the outperformer on Monday. This gain was influenced by the compromise made during the EU Summit across all 27 EU members. However, the risk-on sentiment did not last, and by midweek major bourses ended the week lower.

Source: Bloomberg

US Equity Market

Aside from Russell 2000, US indices moved in tandem in the second half of the week. VIX experienced the second biggest VIX up-move since June 11 on Thursday; however, it remained below the 200-day MA.

Nasdaq began the week on a high due to the results from the AstraZeneca trials. However, the tech index traded down eventually as Intel’s earnings slipped from the delay in its new 7-nanometer production. Also, Twitter revenue missed on disappointing ads despite a positive report of 186 million daily users. Adding to the tech sell-off, Apple is also under investigation in various states, according to a tech watchdog report.

Source: Bloomberg

FIXED INCOME

The US 2Y-10Y curve flattened throughout the week over growing concerns. However, on Friday, the market looked ahead to developments this week on new fiscal stimulus as well as a Fed Reserve meeting, which steepened the curve. Last week, the auction yield for 10-year TIPS hit an all-time low while the demand for $17 billion 20-year bonds was neutral to slightly weak.

Source: Bloomberg

COMMODITIES

There was a major breakout in silver throughout the week. With the prospect of another US stimulus package devalued the USD, which drove the precious metals complex in the last two days. The precious metals complex saw some divergence towards the end of the week as Palladium corrected after six consecutive days, and Platinum and Silver corrected after four straight days of appreciation.

BHP’s announcement that the firm’s copper production is likely to fall by 5-14% led to a temporal rise in base metals. At the same time, Nickel rose +4.2% after Elon Musk asked mining companies to mine more Nickel for batteries. However, the gains were short-lived as the base metals complex came under pressure due to worsening US-Sino tensions despite the weak Dollar.

Source: Bloomberg

CURRENCIES

DXY

The Dollar slumped throughout the week to a near two year low. The dollar weakness was due to the continued devaluation by the FED and aided by a continued rise in Covid-19 cases in the US vis-a-vis Europe. In addition, the Dollar Index composition comprises more than 50% Euro, meaning that the Euro has an outsized influence on the pathway of the Dollar. Hence, the EU stimulus package, which greatly strengthened the Euro, emerged as a liquidity outflow for the Dollar/DXY.

Source: Bloomberg

AUD/USD

On Tuesday, AUD was the biggest winner against the Dollar. This was triggered by broad-based US weakness and overall risk-on sentiment from the EU stimulus package. The stimulus package led to a gain in commodity currencies as well.

Source: Bloomberg

EUR/USD

The Euro scaled to a new 22-month high against the Dollar by Friday, breaching the technically important $1.16 level. This gain was accelerated mainly by the EUR750 billion EU Stimulus Package, which includes the sale of collective debt and grants.

Source: Bloomberg

GBP/USD

The Pound had the best week against the Dollar since early June despite the weak British economy. The pronounced Dollar weakness and the resolution of the EU Stimulus Fund carried over to strengthen the Pound, where no further breakdown in Brexit talks have also aided the positive sentiment. Technically, the consecutive daily closes over the 200-day moving average, and the highest weekly close since March is constructive for further flows into the Pound.

Source: Bloomberg

USD/JPY

The yen strengthened against the Dollar to its highest level in more than four months, gaining steadily throughout the week. However, US equity markets have kept their poise despite the flows into the safe-haven yen, posing a curious divergence between the strong performance of the yen and the benchmark S&P 500. It would be prudent to keep watch on this disconnect as past performance suggest that this disconnect is likely to resolve itself soon, with the edge going towards the equity markets, especially with the resurgence in US Covid-19 cases.

Source: Bloomberg

XAU/USD

Gold was up throughout the week, and Friday’s close brought gold over $1900 for the first time since September 2011. Gold volatility has shot to the upside, thereby validating our view to switch outright gold longs to long gold calls made in the previous weekly update.

Source: Bloomberg

HIGHLIGHTS OF THE WEEK

Americas

United States
  • Steven Mnuchin called for a stimulus package centered on getting children back to school and boosting jobs.
  • Republicans are set to unveil their proposals for a fresh round of stimulus on Monday, including $1,200 per person in direct cash payments, an extended moratorium on evictions, and reduced federal unemployment benefits. Steven Mnuchin shared that the government was “prepared to act quickly” and raised the possibility of passing a new round of stimulus piece by piece, rather than in one single bill, an approach previously rejected by Democrats. Mnuchin added that the administration and Senate Republicans would propose capping benefits at 70 percent of prior wages
  • Joe Biden unveiled a $775 billion plan to bolster child-care and care for the elderly that would be financed by taxes on real estate investors with incomes of more than $400,000 as well as increased tax compliance by high-income earners
  • The US accused two Chinese hackers of working for Beijing to steal or try to steal terabytes of data, including Covid-19 research, from Western companies in 11 nations. The Justice Department said that China’s Ministry of State Security assisted the two men and that defense contractors and weapons systems were hacked along with medical research
  • US Secretary of State, Mike Pompeo, met with Dominic Raab in London and called for a “coalition” to resist Chinese threats. The two diplomats discussed concerns about Hong Kong’s new security law and suggested the G-7 will take more action
  • In the US, existing-home sales rose 20.7% m/m to 4.72 million in June from 3.91 million in May. The increase is consistent with sharp increases pending home sales, which track contract signings in May as most states eased social distancing measures. The NAR reported that the market is “red hot” due to buyer backlog and that sellers are finding eager buyers
  • In the US, initial jobless claims rose to 1.4 million sa during the week ending 18 July, above expectations of 1.3 million. However, on an NSA basis, initial claims declined to 1.4mn from 1.5mn. During the week ending 11 July, continuing claims declined to 16.2 million from 17.3 million. Two-thirds of the decline in continuing claims was driven by California, Florida, Texas, and Pennsylvania, four states with an unusual biweekly continuing claims filing policy

Europe

  • The EU appears to have reached a compromise on its EUR750 billion EU stimulus package. The latest arrangement includes 390 billion euros of grants and 360 billion euros of low-interest loans. While officials from across the bloc have suggested the new volume of grants would be acceptable, it is unclear whether there’d be consensus on other aspects of the proposal, including on issues to do with climate and the rule of law. BOE chief economist Haldane said the economic recovery appears to be V-shaped and has recovered about half of its lost output from March and April
  • Christine Lagarde shared that the mix of loans and grants in the EU’s emergency aid package is “a good balance” but “could have been
    better.” The comments from the Lagarde suggest similar concerns to governments in the bloc that advocated for a larger share of grants,
    arguing that more debt would be unmanageable for some member states
  • The ECB is leaning toward asking banks to hold off on dividends at least through the end of the year
  • ECB’s Luis de Guindos told El Independiente shared that EU banks can survive the virus impacts ahead of the bank’s release of vulnerability analysis of lenders this week. He added that most could probably withstand a 9% drop in GDP and that the two years that would be needed to return to pre-Covid-19 output
  • Spain is being watched closely as the Covid-19 spread appears to be rising. UK and Norway announced mandatory quarantines for anyone arriving from Spain.
  • The U.K. has suspended its extradition treaty with Hong Kong and placed it under an arms embargo. Foreign Secretary Dominic Raab said the moves are “a necessary and proportionate response” to China’s imposition of its new security law.
  • The UK implemented new laws opening Britain’s doors to up to 3 million Hong Kong citizens meaning that approximately 200,000 Hong Kongers could arrive in Britain over the next five years. However, there hasn’t been any backlash over the new laws, unlike the immigration issues in the EU 4 years ago. The UK has grown to be more pro-immigration and over the years according to the Ipsos MORI’s “Issues Index,” immigration no longer topped the list

Asia

China
  • China kept its 1-year and 5-year loan prime rate fixings unchanged yesterday and is said to be mulling retaliation against Nokia and Ericsson if EU leaders follow US and UK decisions to bar Huawei from 5G networks
  • China’s Houston consulate was asked to shut as they were seen burning documents in a courtyard last Tuesday. China retaliated by closing the US’ Chengdu consulate as well. The Americans were given 72 hours to vacate, which was the same amount of time China was given to leave its Houston mission.
Hong Kong
  • In Hong Kong, inflation decelerated to 0.7% in June, the weakest level since March 2017 despite the rally in oil price. For the two most heavily-weighted items, food inflation and housing inflation slowed down to 2.7% (the lowest level since January 2018) and 1.4% (the weakest level since January 2020), respectively. The slowdown of food inflation was mainly driven by the high base effect associated with last year’s port shortage, while the moderation in housing inflation was due to rental concession. Moving forward, imported inflationary pressure could be contained by a relatively strong HKD and weak external demand
Japan
  • Tokyo logged its highest daily rise in Covid-19 cases with 366 new cases
  • The British government has reached out to Japan to help build its 5G wireless network connection without Huawei Technologies. Fujitsu Ltd and NEC Corp are potential alternatives.
Singapore
  • Singapore Tourism Board will spend $45 million in a SingapoRediscovers campaign (and that’s not a typo) for domestic tourism with staycations as a key feature of their campaign
  • More than 67,000 hotel rooms are currently utilized as isolation and quarantine facilities in the battle against Covid-19. However, while it is important to have redundancy in the event of a surge in cases in Singapore, it is crucial to strike an economic balance as well. More than 100 hotels have submitted proposals to reopen for staycations since applications opened at the start of the month. About 80 hotels have been given the green light to do so. Approvals have been given on a case-by-case basis.
Photo of French President Emannuel Macron and German Chancellor Angela Merkel by Herman on Reuters

ECONOMIC CALENDAR

27/7/2020

7:50  JPYCapital Spending (YoY)
8:00  AUDRBA Assist Gov Kent Speaks  
16:00  EURGerman Business Expectations (Jul)
16:00  EURGerman Current Assessment (Jul)
16:00  EURGerman Ifo Business Climate Index (Jul)
18:00  EURFrance Jobseekers Total
20:30  USDCore Durable Goods Orders (MoM) (Jun)
20:30  USDDurable Goods Orders (MoM) (Jun)

28/7/2020

8:00  AUDRBA Assist Gov Kent Speaks  
21:00  USDS&P/CS HPI Composite – 20 n.s.a. (YoY) (May)
22:00  USDCB Consumer Confidence (Jul)

29/7/2020

4:30  USDAPI Weekly Crude Oil Stock
9:30  AUDCPI (YoY) (Q2)
9:30  AUDCPI (QoQ) (Q2)
9:30  AUDTrimmed Mean CPI (QoQ) (Q2)
20:30  USDGoods Trade Balance (Jun)  
20:30  USDRetail Inventories Ex Auto (Jun)
21:30  USDSeevol Cushing Storage Report
22:00  USDPending Home Sales (MoM) (Jun)
22:30  USDCrude Oil Inventories
22:30  USDCushing Crude Oil Inventories

30/7/2020

2:00  USDFOMC Statement  
2:00  USDFed Interest Rate Decision
2:30  USDFOMC Press Conference  
7:50  JPYRetail Sales (YoY) (Jun)
14:00  GBPNationwide HPI (YoY)
14:00  GBPNationwide HPI (MoM)
14:00  EURGerman GDP (YoY) (Q2)  
14:00  EURGerman GDP (QoQ) (Q2)  
15:00  EURSpanish CPI (YoY)  
15:00  EURSpanish HICP (YoY) (Jul)  
15:55  EURGerman Unemployment Change (Jul)
15:55  EURGerman Unemployment Rate (Jul)
17:00  EURUnemployment Rate (Jun)
17:45  EURItalian 10-Year BTP Auction
20:00  EURGerman CPI (MoM) (Jul)  
20:30  USDGDP (QoQ) (Q2)  
20:30  USDGDP Price Index (QoQ) (Q2)  
20:30  USDInitial Jobless Claims
23:45  AUDBuilding Approvals (MoM) (Jun)

31/7/2020

All Day Singapore, Indonesia and Malaysia – Eid al-Adha
7:30  JPYJobs/applications ratio (Jun)
7:50  JPYIndustrial Production (MoM) (Jun)
9:00  CNYChinese Composite PMI (Jul)
9:00  CNYManufacturing PMI (Jul)
9:00  CNYNon-Manufacturing PMI (Jul)
9:30  AUDPPI (YoY) (Q2)
9:30  AUDPPI (QoQ) (Q2)
9:30  AUDPrivate Sector Credit (MoM) (Jun)
13:30  EURFrench GDP (QoQ) (Q2)  
14:00  EURGerman Retail Sales (MoM) (Jun)
14:45  EURFrench Consumer Spending (MoM) (Jun)
14:45  EURFrench CPI (MoM)  
14:45  EURFrench HICP (MoM)  
15:00  EURSpanish GDP (QoQ) (Q2)  
17:00  EURItalian CPI (MoM) (Jul)  
17:00  EURCore CPI (YoY)  
17:00  EURCPI (YoY) (Jul)  
17:00  EURGDP (QoQ)  
17:00  EURGDP (YoY)
20:30  USDCore PCE Price Index (YoY) (Jun)
20:30  USDCore PCE Price Index (MoM) (Jun)
20:30  USDEmployment Cost Index (QoQ) (Q2)
20:30  USDPCE Price index (YoY) (Jun)
20:30  USDPCE price index (MoM) (Jun)
20:30  USDPersonal Spending (MoM) (Jun)
20:30  CADGDP (MoM) (May)
20:30  CADRMPI (MoM) (Jun)
21:45  USDChicago PMI (Jul)
22:00  USDMichigan Consumer Expectations (Jul)
22:00  USDMichigan Consumer Sentiment (Jul)
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