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“Risk on” resumes! Data wins over virus concerns

Macroeconomic/ geopolitical developments

• Global financial markets have started to resolve the indecisive theme that has been evident from the middle of June into more of a “risk on” bias to start July.
• Markets have been caught between two competing forces; increasingly positive economic data compared to consensus and the rise in COVID-19 cases (particularly in the southern states of the US, but also in pockets globally).
• The strong data seems to have won out over the past week, most significantly on Thursday after the US employment report, that came in far better than market expectations.
• 4.8 million jobs were added to the US economy in June, with an expected number of around 3 million.
• This served to build on Wednesday’s positive survey data from the Markit Manufacturing Purchasing Managers Index (PMI) for Europe and the US ISM Manufacturing PMI.
• This was in turn further reinforced by Friday’s release of Markit Services and Composite PMI for Europe (during the Independence Day holiday being observed on Friday 3^rd July).
• However, the ongoing growth of the coronavirus in southern US states sees ongoing concerns, as many states have re-imposed lockdown measures, notably in Florida Texas, California and Arizona.
• Furthermore, significant pockets of outbreaks globally; in Australia, Germany, Tokyo, Beijing and Leicester in the UK, have underscored ongoing risks.
• In the UK further easings of lockdown measures kicked in on Saturday 4^th July, including the reopening of pubs, restaurants and cinemas, but with the impact on the economy and the pandemic too early to quantify.

• With the spotlight on the UK, there have been further negative soundings from both the UK and Europe with respect to the ongoing Brexit trade negotiations.

Global financial market developments

• Global share averages attempted bullish breakouts from multi week ranges on Thursday, challenging notable June peaks.

• From a technical analysis perspective, this now points to a potential extension of the bullish rallies seen from March-April and from mid-May-mid-June.
• In Forex markets, there is still a note of caution, though the major “commodity” or “risk” currencies (AUD, NZD, CAD) have started to rally against the US Dollar.
• Mixed messages again from the commodity world, Oil has probed back towards multi-month peaks, whilst Copper has setback from a new high posted in early July.

Key this week

• Full focus will remain on new cases and deaths from the COVID-19 coronavirus, with particular concerns about the rises in the southern US states.
• Central Bank Watch: Tuesday sees the Reserve Bank of Australian (RBA) meeting, interest rate decision and statement.
• On the macroeconomic data front we get; US Non-Manufacturing and Composite PMI released by Markit, with the more watched US Non-Manufacturing PMI from the ISM on Monday, Tuesday brings German Industrial Production, Thursday sees the Chinese Consumer Price Index (CPI) data plus US Jobless Claims released, with Friday’s focus on the Canadian Employment report.

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