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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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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Drivers for the Week Ahead

  • The dollar has been stuck in narrow ranges as markets contend with conflicting drivers
  • Last week’s jobs reports has likely set expectations high for the rest of the June data
  • Data highlight this week is likely to be ISM non-manufacturing PMI Monday; Canada reports June jobs data Friday
  • Chancellor Sunak addresses UK Parliament Wednesday Press reports suggest that Bank of England Governor Bailey is laying the groundwork for negative interest rates
  • Brexit talks between the UK and the EU continue this week; talks on the EU recovery fund will continue
  • Japan has a heavy data week; RBA meets Tuesday and is expected to keep policy unchanged

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Virus Numbers Pose Headwinds to US Economy

This is likely to be one of the most important US data months we’ve had in a while. While we have gotten some glimpses of June data already, this week brings the first major reads on the US economy. Over the next couple of weeks, we will even start to see some early July data trickle out, which is arguably even more important now that some states have had to slow or even reverse some reopening steps.

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Drivers for the Week Ahead

  • Risk assets came under pressure last week as the virus news stream worsened; the dollar continues to benefit from risk-off sentiment
  • This is likely to be one of the most important US data weeks we’ve had in a while; it comes at a time when US economy is taking a step back just as Q3 is about to get under way
  • Jobs data is the highlight Thursday; claims data suggest market consensus of +3 mln s way too optimistic; FOMC minutes will be released Wednesday
  • France and Germany will meet Monday to discuss strategy on getting a deal struck on the EU pandemic rescue package
  • UK and EU begin their “intensified timetable” for Brexit negotiations; Riksbank meets Wednesday and is expected to keep rates on hold at zero; Japan has a heavy data week

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Recent Trade Developments Suggest Some Caution Ahead Warranted

There’s never a good time for a trade war. Yet here we are on the cusp of one between the US and the EU over unfair aircraft subsidies and comes at a time when renewed COVID-19 outbreaks are making the global economic outlook even cloudier. These developments suggest some caution ahead is warranted for risk assets like EM and equities. Continue reading “Recent Trade Developments Suggest Some Caution Ahead Warranted”

Some Thoughts on Current FX Positioning

Every now and then, we find it helpful to take a look at the CFTC Commitment of Traders report. Here, we focus on non-commercial positions up to the week ended June 16. While this data represents a small slice of the speculative community, it does provide a window into market positioning. Continue reading “Some Thoughts on Current FX Positioning”

Drivers for the Week Ahead

  • There are some indexing events this week that could add to market volatility; the IMF will release updated global growth forecasts Wednesday
  • The regional Fed manufacturing surveys for June will continue to roll out; Fed speaking engagements are somewhat limited this week
  • Eurozone reports preliminary June PMI readings Tuesday; ECB releases its account of the June meeting Thursday
  • All quiet on the Brexit front; UK reports preliminary June PMI readings Tuesday
  • Japan reports preliminary June PMI readings Tuesday; the Antipodeans have a fairly quiet week; RBNZ meets Wednesday

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