Macroeconomic/ geopolitical developments
- Global financial markets have still indicated a move to more of a “risk on” theme in July, after the hesitant tone June.
- The “risk on” tone across global financial markets is however, somewhat cautious, as asset classes are digesting positive macroeconomic and earnings data combined with hopes of a COVID-19 vaccine, but also ongoing concerns regarding the growing number of cases, hospitalizations and deaths in many of the southern and western US states.
- The “risk on” theme of the past week has been aided by positive results from Gilead Sciences regarding the remdesevir treatment for the coronavirus, alongside the encouraging tests from both Moderna and Oxford University for a COVID-19 vaccine.
- July macroeconomic data from the US, China and Europe has broadly improved over the past week.
- This has been accompanied by the robust start to the US earnings season, as US banks posted strong results for the second quarter.
- Although forward guidance has been somewhat cautious and Netflix disappointed towards the end of the week, so far the earnings season has boosted the broader US equity indices (as well as global stock averages).
- On the other hand, the substantial rises in coronavirus cases, hospitalizations and deaths in the US has yet to have any meaningful negative impact on financial markets.
- In addition, pockets of outbreaks globally (in Tokyo, Shanghai, Australia, Germany and the UK) have been dealt with fairly successfully by the authorities
- In Europe there is a positivity regarding an agreement on the EU recovery fund, plus the Eurozone seems to be emerging from lockdowns without any aggressive rise in COVID-19 cases.
- In the UK, lockdown measures continue to be relaxed, whilst stimulus measures are rolled out by the government.
- The next few weeks will be important to gauge whether the unlocking of the European and UK economies has been successful from both a health perspective and an economic standpoint.
Global financial market developments
- The “risk on” theme saw some global equity indices produce new multi-month highs, above June peaks in the past week, notably the S&P 500 and the German DAX.
- However, although the tech sector initially continued its charge higher early last week, upside hesitancy has been encountered, reflected by the setback in the Nasdaq.
- The fading tech sector strength though, has been substituted by a rotation into value stocks, which saw the Dow Jones Industrial Average and the S&P 500 take upside directional leadership from the Nasdaq.
- US Treasury Bonds remain near recent and historic low yields, signalling both caution and a “risk off” threat, but also no doubt reflecting the Fed bond buying program.
- In the Forex space, the US Dollar has stayed weak, again echoing more of a “risk on” theme and the lower US yields.
- The Euro has been the main beneficiary of the US Dollar weakness, with EURUSD also higher from hopes that the EU recovery fund will be agreed up[n.
- In the commodity world, Copper dipped from a new multi-month high (but still indicating a risk on bias), whilst Oil and Gold stay capped by peaks set in June and in earlier July respectively.
Key this week
- The focus will remain on new cases and deaths from the COVID-19 coronavirus, with ongoing anxieties regarding the increases in the southern and western US states.
- Central Bank Watch: A relatively quiet week as Monday sees the People’s Bank of China (PBoC) interest rate decision, with Monday and Tuesday respectively seeing the release of the Bank of Japan (BoJ) and Reserve Bank of Australia (RBA) Meeting Minutes.
- Earnings season continues in the US, with the following reports of note; IBM (IBM) on Monday, Coca Cola (KO) and Texas Instruments (TXN) Tuesday, Wednesday brings Microsoft (MSFT) and Tesla (TSLA), with Amazon (AMZN) and Intel (INTC) on Thursday and Verizon (VZ) on Friday.
- Relatively light on the macroeconomic data front the standouts being; Canadian Retail Sales and CPI Tuesday and Wednesday, weekly US Jobless Claims as usual on Thursday, and on Friday UK Retail Sales, plus global Markit Flash Purchasing Manager Index (PMI) data for July.
|Date||Key Macroeconomic Events|
|20/07/20||BoJ Meeting Minutes, PBoC interest rate decision,|
|21/07/20||RBA Meeting Minutes; Canadian Retail Sales|
|23/07/20||US Jobless Claims|
|24/07/20||UK Retail Sales; global Markit Flash PMI data for July|