Market Sentiment Dented by Weak Data and Rising US-China Tensions

  • Market sentiment has been dented by more than just rising virus numbers; yet the dollar continues to trade within recent well-worn ranges
  • California’s decision to reverse partial reopening will likely have a huge economic impact; June CPI may hold a bit more interest in usual; June budget statement is worth a quick mention
  • Weak eurozone IP was reported; machinations around the EU’s €750 bln rescue fund continue to progress in the right direction
  • UK data today was very disappointing; UK Office for Budget Responsibility (OBR) published its fiscal sustainability report; Poland is expected to keep rates steady at 0.10%
  • Singapore advance Q2 GDP was disappointing; China’s trade figures rebounded faster than expected in June; US officials have ruled out attacking the HKD peg

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DM Sovereign Rating Model For Q3 2020

Back in April, we warned that our own sovereign ratings model was pointing to many sovereign downgrades ahead. Indeed, Fitch’s downgrade on the UK to AA- back on March 27 was only the beginning. Since then, there have been thirteen rating moves, all negative. More are coming. Note that that the April edition focused only on the 17 major Developed Markets (DM) countries, while this edition goes back to covering the full 33 countries in our model universe.

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Dollar Rangebound in Quiet Start to an Eventful Week

  • Today marks a relatively quiet start to what is likely to be one of the most eventful weeks we’ve seen in a while; the dollar remains within recent well-worn ranges
  • The US continues to ratchet up trade tensions; the only US data report today is the June budget statement
  • ECB published intervention bands for Bulgaria and Croatia; incumbent President Duda will win in Poland
  • Oil prices are under pressure from reports that OPEC+ may ease supply cuts; India reports June CPI

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Drivers for the Week Ahead

  • This is likely to be one of the most eventful weeks we’ve seen in a while; the dollar remains within recent well-worn ranges
  • The US rates markets suggest trouble ahead; June retail sales report Thursday is likely to be the data highlight for the week; BOC meets Wednesday
  • The ECB meets Thursday; EU summit will be held Friday and Saturday in Brussels; UK has a heavy data week
  • OPEC+ meets Wednesday to discuss whether to extend its full output cuts; BOJ meets Wednesday; Australia reports June jobs data Thursday

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EM Preview for the Week Ahead

This is likely to be one of the most eventful weeks we’ve had in a while. Not only do three major central banks meet, but four EM central banks also meet, and we get important June and July data from the US, the first Q2 GDP reading from China, an OPEC+ meeting, and an EU summit. This comes as markets are grappling with still-rising virus numbers in the US and resurgent numbers in many other countries that call into question the durability of the economic recovery. With so many events impacting virtually all assets, we expect a volatile week ahead for the markets and may serve as a gut punch to risk assets like EM.

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Dollar Flat, US Rates Point to Growing Concerns

  • The contagion outlook continues to worsen in many regions of the US; the dollar remains within recent well-worn ranges
  • The Trump administration is re-igniting its offensive against European countries looking to tax internet companies; the US 10-year Treasury yield is approaching the low for the year again
  • The Fed Funds futures strip continues to move up its outlook for negative rates; US June PPI today has taken on more significance in light of the drop in US rates
  • Canada reports June jobs data; the EU released its compromise recovery plan; UK rates markets are also pricing in a greater chance of negative rates
  • Japan reported June PPI; the rally in Chinese equity indices came to an end overnight; Singapore held general elections today

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Dollar Softens as Risk-Off Sentiment Ebbs

  • The global case count for the virus hit the 12 million milestone; the dollar is softer as risk-off sentiment fades
  • Reports suggest Democratic presidential candidate Joe Biden will hew to a centrist economic path; weekly jobless claims will be reported
  • Atlanta Fed President Bostic speaks; Peru is expected to keep rates steady at 0.25%
  • Germany reported May trade and current account data; yesterday’s Summer Statement by UK Chancellor Sunak was focused on employment, as expected
  • Japan reported May core machine orders and June machine tool orders; China’s equity rally continues and so does the rally in CNY

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Dollar Bid as Market Sentiment Yet to Recover

  • The US has started the formal process of withdrawing from the WHO; the dollar continues to benefit from risk-off sentiment but remains stuck in recent ranges
  • The White House is asking Congress to pass another $1 trln stimulus plan by early August; President Trump hosts Mexican President AMLO for a two-day visit
  • Chancellor Sunak addresses UK Parliament today; Brexit talks continue; Nigeria devalued its official exchange rate yesterday
  • RBNZ is considering an extension of its home loan deferral scheme; the US is reportedly weighing proposals designed to undermine the Hong Kong dollar peg

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Dollar Bounces as Markets Shift into Risk-Off Mode

  • The virus news stream remains negative; the dollar remains stuck in narrow ranges
  • The only US data release today is May JOLTS job openings; Congress has gone on recess until July 20; Canada reports June Ivey PMI
  • German May IP came in well below expectations; the EC cuts its 2020 forecast for the eurozone economy a full percentage point to -8.7%
  • Japan reported weak May real cash earnings and household spending; RBA kept policy unchanged, as expected
  • Chinese equity markets continue to rally; Philippines reported June CPI; Malaysia cut rates 25 bp, as expected

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