Equity Markets

The week started off with downsides in the Asian markets after China returned from their holiday. However, the downside did not last for long as the quarter-end markups were in session across most equity indices globally. While the European and American markets overall had a good week with most indices racked up several bests for the quarter where the S&P 500 had the best quarter since 1998.

Meanwhile, promising vaccine headlines boosted the equities market. In the second half of the week, the equity indices were paced by the Chinese market and the HSI shrugged off the unrest over the new National Security law to a record +2.85% gain. While the German parliament had backed the ECB bond-buying helped the DAX to rise by 2.84% on Thursday.

The US markets were closed on Friday in observation for its Independence day, so the trading focus was on Asia and Europe. The Asian markets ended on a high with SHCOMP rising up by +2.01%. Whereas for the European markets the DAX was the strongest up by +3.5% whereas the FTSE 100 was laggard for the week.

Source: Bloomberg

Fixed Income

The week started with the flattening of the yield curve and by mid-week the yield curve had steepened as manufacturing activity data shows a rebound. The US Treasury yields which rose on Thursday after better-than-expected June jobs data, slipped later in the session ahead of a long holiday weekend, which could bring more troubling news in the battle against the Covid-19 re-acceleration. The US Treasury market had closed on Friday to celebrate the nation’s independence day.

Source: Bloomberg

Commodities

Brent Crude Oil rose by 1.68% as traders continue to add inflation trades in their portfolio. Despite the uptick in flat price, the 1st to 2nd-month spread was still in slight contango. The return of the Chinese after the Dragon Boat holiday did little to lift volumes but ensured all metals closed positive. While the quarter-end markups were positive for precious metals, base metals faced some pressure.

By mid-week, the CBOE oil volatility dipped by 7%, providing some support for oil longs. Despite the positive US job numbers, there was a limited rebound due to the significant reduction in activities in BHP’s Cerro Colorado mine. By the end of the week, WTI had reclaimed the USD 40/bbl handle. On Friday most base metals were under pressure with copper facing a significant fall due to some hints pointing at onshore demand easing.

Source: Bloomberg

Currencies

On Monday the Dollar index had strengthened. However, the rise was short-lived and by mid-week, it fell as markets digested less bearish comments from monetary officials along with the spread of the Coronavirus. The appeal of the US Dollar being a safe haven currency had diminished momentarily. On Thursday the Dollar index had risen as investors are concerned that the resurgence of cases could erase the summer employment gains. However, by Friday the Dollar index was set for its greatest weekly fall due to the negative sentiments.

Source: Tradingview

Throughout the week, the Dollar had weakened against the commodity currencies.

Source: Bloomberg

In the beginning, the Euro had strengthened against the Dollar. However, throughout the week, the Dollar had regained and eventually strengthened against the Euro by the end of the week. The week had ended with relatively flat Euros against the dollar.  

Source: Bloomberg

On Monday, the Pound had weakened against the Dollar over concerns about how the British Government will pay for its planned infrastructure program and hard Brexit concerns. However, on Tuesday the Dollar had weakened against the Pound and by Wednesday the Pound rose and strengthened against the dollar on the back of upbeat US data and UK PMI figures. There hasn’t been a particular trend in the GBP/USD currency market.

Source: Bloomberg

The Dollar had strengthened against then Yen earlier in the week. However, by mid-week, the Yen had regained and strengthened against the Dollar in line with the declining Asian stock markets. The strengthening of the Yen was short-lived and by the end of the week, the Dollar had continued to strengthen against the Yen.

Source: Bloomberg

Gold had a quiet start trading very tightly in a 10-dollar range. However, Gold prices are set to rise as concerns over a second wave of Covid-19 along with the uncertainty of the US-China Trade War and unemployment claims in US have dampened investors positive outlook.

Source: Bloomberg

Highlights of the Week

United States

  • In the US, pending home sales rose sharply by 44.3% m/m in May after declines of 21.8% and 20.8% in April and March, respectively. The rebound in contract signing activity suggests a strong rebound in buyer demand for previously owned homes as most states eased restrictions on resident mobility and non-essential business activity in May
  • Positive vaccine developments by Pfizer and BioNtech SE, and macro data outweighed concerns over rising infections, sending Nasdaq to a record
  • House unanimously passed legislation to penalize banks doing business with Chinese officials involved in the law. The US is also preparing long-delayed sanctions over human-rights abuses against Uighurs in Xinjiang
  • The 3-month LIBOR eased to 0.2985%
  • US labor market report with non-farm payrolls adding 4.8 million jobs in June and the unemployment rate falling by 2.2% to 11.1%
  • Unemployment improvement was led by leisure, hospitality, and retail
  • The US economy will contract 5.9% with unemployment seen at 10.5% by year-end according to CBO
  • Covid-19 cases rising in several states in particular Florida with the greatest jump while NYC plans to reopen its public schools in September
  • Steven Mnuchin stated that he had started negotiations with congress over the next economic rescue package which may include another round of stimulus checks. The legislation could include redirecting roughly $120 billion in unused funds left in the Paycheck Protection Program for small businesses

Europe

  • German inflation rose more than expected by 0.8% y/y (0.7% m/m) amid higher prices for services including hair and cosmetic services and restaurants and cafes, likely due to more stringent hygiene costs. Meanwhile, the Euro-area economic confidence rose less than expected to 75.7 in June
  •  UK is experiencing a stronger recovery than the BOE was expecting. PM Johnson pledged a “New Deal” with GBP 12 Billion to support 180,000 new and affordable homes over the next eight years and GBP 5 Billion for hospital maintenance, school repairs and road improvements
  • The EU extended its travel ban for US residents, deeming the American response to the pandemic insufficient
  • Eurozone PMI also rose to a 4-month high of 47.4 in June from 39.4 in May
  • The British government said it is moving ahead with plans to give almost 3 million city residents the right to live in the UK with a path to citizenship and they gave the Chinese ambassador a tongue lashing

Asia

  • US revoked Hong Kong’s special status, citing an increased risk that sensitive American technology will fall into China’s hands after new national security laws are in place.
  • In Asia, Hong Kong’s national security legislation generated more fallout as police battled protesters into the night, making about 370 arrests, including 10 under the new law
  • Chinese President Xi signed an order to impose the security law on Hong Kong, while the US vowed “strong actions” and UK Prime Minister Johnson said he was “deeply concerned”
  • The PMI improvements were led by Malaysia (51.0 versus 45.6 previously) and Vietnam (51.1 versus 42.7 previously) which is back in expansion territory, whereas those for Japan (40.1), South Korea (43.4), Taiwan (46.2), Philippines (49.7), India (47.2), Thailand (43.5) and Indonesia (39.1) remain mired in contraction territory
  • In Singapore, bank loans growth slowed to 0.5% y/y in May, the slowest since September 2016 (-0.8%), bank loans growth is likely to remain tepid in the coming months and consumer loans may remain a drag into 3Q
  • Singapore retail sales plunged 52.1% y/y. The supermarket/hypermarket sales had outperformed while the worst hit segments include watches & jewelry (-96.9% y/y) department stores (-93.7% y/y), apparel & footwear (-89.1% y/y), motor vehicle sales (-85.7% y/y) and recreational goods (-74.2% y/y) as retail shops and car showrooms were all closed. The silver lining continued to be online sales which accounted for 24.5% of total retail sales, driven still mainly by supermarkets, computer & telecommunications equipment, and furniture & household equipment. Retail sales are still likely to contract by 9.5% y/y for the whole of 2020, signifying a Covid-19 induced recession for Singapore.

Upcoming Calendar

7 Jul 2020

Time Location Event 
06:00 NZD NZIER Business Confidence 
07:30JPYHousehold Spending (YoY) (MoM)
12:30AUDRBA Interest Rate Decision (Jul)
14:00EURGerman Industrial Production (MoM) 
15:00MYRInterest Rate
15:30GBPHalifax House Price Index (MoM) (Jun)
16:30GBPLabour Productivity (Q1)
22:00USDJOLTs Job Openings (May)
22:00CADIvey PMI (Jun)
23:20NZDGlobal Diary Trade Price Index

8 Jul 2020

01:00 USD FOMC Member Quarles Speaks 
02:00USDFOMX Member Daly Speaks
04:30USDAPI Weekly Crude Oil Stock 
07:50JPYCurent Account n.s.a. (May) 
17:00EUREU Economic Forecasts 
Tentative GBPBOE MPC Treasury Committee Hearings 
20:15CADHousing Starts (Jun)
22:30USDCrude Oil Inventories 
22:30USDCrushing Crude Oil Inventories

9 Jul 2020

01:01 USD 10-Year Note Auction 
09:30AUDHome Loans 
09:30CNYCPI (MoM) (YoY) (Jun)
09:30CNYPPI (YoY) (Jun)
20:30USDInitial Jobless claims 
20:30 CAD Building Permits (MoM) (May)

10 Jul 2020

16:00USD IEA Monthly Report  
20:30USDCore PPI (MoM) (Jun)
20:30USDPPI (MoM) (Jun)
20:30CADEmployment Change (Jun)
20:30 CADUnemployment Rate (Jun)

13 Jul 2020

08:00INR CPI (YoY) (Jun)
14:00USDCPI (YoY) (Jun)
19:01GBPCPI (YoY) (Jun)
21:30AUDCPI (YoY) (Jun)

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