Photo by chuttersnap on Unsplash
Photo by Aditya Vyas on Unsplash

EQUITY MARKETS

It was an all-round positive day across worldwide equity indices on Monday, the China equity markets were the star of the show. However, the Monday highs were unable to sustain its momentum with most equity indices closing lower the following days. There has been a relatively significant sell-off in the China equity market after the talk on China State funds selling stocks on Friday.

Meanwhile, Nasdaq rocketed higher by +2.54% leaving its peers in the dust. VIX was slightly higher at 27.9 on Monday, bouncing off its 200-day moving average. Tech companies such as Apple, Amazon and chip-maker Nvidia had set record highs on Wednesday.

The European market had a divided performance with Spain, the UK, and France facing losses while Germany was leading the way with a +0.78% gain for the week.

Source: Bloomberg

FIXED INCOME

US Treasury yields edged higher on Monday as investors focused on an eventual economic rebound with a rise of 0.66-1.20bps in long term yields, steepening the yield curve. However, this was short-lived as the worsening Covid-19 caseload aggravated concerns about reopening too quickly resulted in a significant fall in the long term US Treasury yields, thus flattening the curve.

On Wednesday, the US had sold 20 billion worth of 10-year notes for the lowest yield on record which indicates a strong demand for the safe-haven securities despite a flood of new issuance to fund economic stimulus in response to the Covid-19 pandemic.

However, by the end of the week, the long term US Treasury yields had rebounded as the optimism about an antiviral drug to treat Covid-19 had outweighed the concerns over the rise in the number of cases.

Source: Bloomberg

COMMODITIES

On Monday, copper and nickel were the best performers for base metals. Onshore sentiment via the SHFE aggregate open interest was the highest since mid-Feb suggesting that longs were established. Silver logged the highest close since 1st Jun

Both copper and nickel gained strongly once again amidst reports that Chilean copper miners were contracting Covid-19. Brent did not have significant changes to their levels on both days.

Base metals got to see a rally to a new YTD high where over the last 5 days the copper curve had tightened with the cash-3 month curve in backwardation. Brent had a significant rise on Friday posting a rebound from the lows, however, the prices could be under pressure if OPEC+ ease oil output cuts.

Source: Bloomberg

CURRENCIES

DXY

Since 6 July, the Dollar traded largely in a range. Despite the new highs made in equities, the fact that the Dollar, being a safe-haven play, has not weakened even further, suggest that there is still a moderate risk-on sentiment.

Source: Bloomberg

AUD/USD

With the rise in the number of Covid-19 cases in Melbourne and the lock-down measure implementation, the Aussie weakened slightly against the Dollar over the span of the week.

Source: Bloomberg

EUR/USD

The Euro strengthened against the USD throughout the week, even reaching a 3 week high against the USD on Wednesday. This could be due to the continual rise in economic activity and stabilization in the number of Covid-19 cases in the Eurozone. Meanwhile, the rise in the number of Covid-19 cases in the US has been hampering investors’ confidence in the Dollar.

Source: Bloomberg

GBP/USD

The pound had a relatively optimistic week with the optimism hinging on a successful trade deal between UK and EU as well as the promise made by Rishi Sunak, British Finance minister, for furloughed workers and tax cuts.

Source: Bloomberg

USD/JPY

Safe-haven currencies – Yen and Swiss Franc – have been strengthening against the Dollar throughout the week. The gradual move towards safe-haven currencies comes amidst a second wave of Covid-19 as well as the rise in US-China trade war tensions.

Source: Bloomberg

XAU/USD

Investors’ growing concerns over the devaluation of the USD, has seen more inflows into Gold. It has been setting multiple new records with a new high price of $1818.02, the highest level since 2011.

Source: Bloomberg

Photo by M. B. M. on Unsplash

HIGHLIGHTS OF THE WEEK

Americas

United States
  • US equity markets rallied on economic optimism after the US non-manufacturing ISM surprised to the upside by surging from 45.4 in May to a four-month high of 57.1 in June amid the re-openings
  • The improvement in the Markit services PMI was less spectacular at 47.9 in June, versus 37.5 in May, and still mired in contraction territory
  • The US PPI fell 0.2% m/m in June reversing a 0.4% gain in May marking the 4th drop in 5 months
  • The US has formally withdrawn from the World Health Organisation
  • Larry Kudlow shares that the US-China trade deal isn’t dead despite other bilateral issues including Hong Kong and national security. He stated that they did not want the US railroad retirement fund to invest in China, but they are very much “engaged in the Phase 1 China trade deal”
  • United Airlines warned that 36,000 jobs (45% of its US workforce) are at risk after fed payroll aid expires at end-Sept.
Brazil
  • Brazil President Jair Bolsonaro tested positive for COVID-19

EU

  • Anglea Merkel urged the EU to forge a common path to confront what she called the biggest challenge in its history, calling on member states to reach agreement on an ambitious recovery plan this summer

Australia

  • RBA kept its policy rate static at 0.25% while affirming its bond-buying program, though it warned that the outlook remains “highly uncertain”. However, RBA maintained a similar language for the most part in its statement
  • Australia’s state of Victoria announced a 6-week lock-down for Melbourne city that came into effect since 8 July 2020

Asia

China
  • The massive risk-on sentiment in China seen in the past week appears to be mainly supported by four factors from a macro perspective: Firstly the easing of credit which favors China’s equity market while easing money was considered as supporting factor bond market. Secondly, China’s swift reaction to Beijing’s mini outbreak reinforced the market’s confidence in the Government’s capability to deal with the potential second wave infection. Thirdly, the US’s reaction towards Hong Kong’s national security law has been fairly measured for now. Fourth, China’s latest economic indicators showed that the economic recovery is still on track
  • Chinese state funds moved to trim stock holdings and the China Economic Times warned of the dangers of a “crazy” bull market after the Chinese stock market added $1 trillion in the past week
Singapore
  • The ruling party kept its grip on power with the People’s Action Party winning 83 of the 93 seats. However, the popular vote fell below expectations with a 61.2% from the previous result of 69.9%
Malaysia
  • Bank Negara Malaysia cut its overnight policy rate by 25 bps to 1.75%
Hong Kong
  • Throughout the week, HKD continued to touch the strong side of the trading band. The strength was mainly supported by the real demand associated with dividend payouts, equity inflows, and expectations of more IPOs. HKMA sold another HK$15.76 billion to defend the currency peg and brought the aggregate balance up to HK$164.9 billion
  • Hong Kong is shutting schools again amid a surge in Covid-19 cases, with officials saying that the 3rd wave was “getting a bit out of hand”
Japan
  • Meanwhile Japan is pushing ahead with re-openings even as Tokyo’s reported Covid-19 cases topped 200 for a record 4th day
Photo by Sharon McCutcheon on Unsplash

ECONOMIC CALENDAR

13/7/2020

Time (GMT+8)Location Event 
12:30  JPYTertiary Industry Activity Index (MoM)
20:00  INRCPI (YoY) (Jun)

14/7/2020

2:00  USDFederal Budget Balance (Jun)
7:01  GBPBRC Retail Sales Monitor (YoY) (Jun)
9:30  AUDNAB Business Confidence (Jun)
12:30  JPYIndustrial Production (MoM) (May)
14:00  GBPClaimant Count Change (Jun)
14:00  GBPEmployment Change 3M/3M (MoM) (May)
14:00  GBPGDP (MoM)
14:00  GBPIndustrial Production (MoM) (May)
14:00  GBPManufacturing Production (MoM) (May)
14:00  GBPTrade Balance (May)
14:00  GBPTrade Balance Non-EU (May)
14:00  GBPUnemployment Rate (May)
14:00  EURGerman CPI (MoM) (Jun)
14:30  INRWPI Inflation (YoY) (Jun)
15:00  EURSpanish CPI (YoY) (Jun)
15:00  EURSpanish HICP (YoY) (Jun)
17:00  EURGerman ZEW Current Conditions (Jul)
17:00  EURGerman ZEW Economic Sentiment (Jul)
17:00  EURIndustrial Production (MoM) (May)
17:00  EURZEW Economic Sentiment (Jul)
19:00  USDOPEC Monthly Report  
20:30  USDCore CPI (YoY) (MoM) (Jun)
20:30  USDCPI (MoM) (Jun)
20:52  CNYExports (YoY) (Jun)
20:52  CNYImports (YoY) (Jun)
20:53  CNYTrade Balance (USD) (Jun)
Tentative  GBPNIESR GDP Estimate

15/7/2020

8:30  AUDWestpac Consumer Sentiment (Jul)
14:00  GBPCPI (MoM) (YoY) (Jun)
14:00  GBPPPI Input (MoM) (Jun)
16:00  EURItalian CPI (MoM) (Jun)
20:30  USDExport Price Index (MoM) (Jun)
20:30  USDImport Price Index (MoM) (Jun)
20:30  USDNY Empire State Manufacturing Index (Jul)
20:30  CADCore CPI (MoM) (YoY) (Jun)
20:30  CADCPI (MoM) (Jun)
20:30  CADManufacturing Sales (MoM) (May)
21:15  USDIndustrial Production (MoM) (YoY) (Jun)
22:00  CADBoC Monetary Policy Report  
22:00  CADBoC Rate Statement  
22:00  CADBoC Interest Rate Decision
23:15  CADBOC Press Conference  

16/7/2020

2:00  USDBeige Book
Tentative  USDTreasury Department Report  
9:30  AUDEmployment Change (Jun)
9:30  AUDFull Employment Change (Jun)
9:30  AUDNAB Quarterly Business Confidence
9:30  AUDUnemployment Rate (Jun)
10:00  CNYFixed Asset Investment (YoY) (Jun)
10:00  CNYGDP (QoQ) (YoY) (Q2)
10:00  CNYChinese GDP YTD (YoY) (Q2)
10:00  CNYIndustrial Production (YoY) (Jun)
10:00  CNYChinese Industrial Production YTD (YoY) (Jun)
10:00  CNYChinese Unemployment Rate
10:00  CNYNBS Press Conference  
14:00  GBPAverage Earnings Index +Bonus (May)
14:00  GBPClaimant Count Change (Jun)
14:00  GBPEmployment Change 3M/3M (MoM) (May)
14:00  GBPUnemployment Rate (May)
14:45  EURFrench CPI (MoM) (Jun)
14:45  EURFrench HICP (MoM) (Jun)
16:30  GBPBOE Credit Conditions Survey  
17:00  EURTrade Balance (May)
19:45  EURDeposit Facility Rate (Jul)
19:45  EURECB Monetary Policy Statement  
19:45  EURECB Interest Rate Decision (Jul)
20:30  USDCore Retail Sales (MoM) (Jun)
20:30  USDPhiladelphia Fed Manufacturing Index (Jul)
20:30  USDPhilly Fed Employment (Jul)
20:30  USDRetail Sales (MoM) (Jun)
20:30  CADForeign Securities Purchases (May)
20:30  EURECB Press Conference  
22:00  USDBusiness Inventories (MoM) (May)
22:00  USDRetail Inventories Ex Auto (May)

17/7/2020

4:00  USDTIC Net Long-Term Transactions (May)
7:30  JPYNational Core CPI (YoY) (Jun)
14:00  GBPRetail Sales (MoM) (Jun)
17:00  EURCore CPI (YoY) (Jun)
17:00  EURCPI (MoM) (Jun)
17:00  EURCPI (YoY) (Jun)
20:30  USDBuilding Permits (MoM) (Jun)
20:30  USDBuilding Permits (Jun)
20:30  USDHousing Starts (Jun)
20:30  USDHousing Starts (MoM) (Jun)
20:30  CADWholesale Sales (MoM) (May)
22:00  USDMichigan Consumer Expectations (Jul)
22:00  USDMichigan Consumer Sentiment (Jul)
20:30  USDHousing Starts (Jun)
20:30  USDHousing Starts (MoM) (Jun)
20:30  CADWholesale Sales (MoM) (May)
22:00  USDMichigan Consumer Expectations (Jul)
22:00  USDMichigan Consumer Sentiment (Jul)
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