Markets have been balancing hopes for some positive economic developments, though the US infections resurgence clouds the future of the global economy.
Most markets had gained ground last week as a raft of economic data from June beat expectations. However, investors’ fears about sharp spikes in new coronavirus infections outshined a strong quarterly rebound.
In the first four days of July alone, 15 states have reported record increases in new cases of COVID-19.
U.S. manufacturing activity rebounded more than expected in June. The Institute for Supply Management’s manufacturing activity index hit its highest in 14 months. Similar surveys from China, Germany and France all pointed to an improvement in factory activity.
Also, a sentiment boost from better-than-expected jobs data in the United States was tempered by surging coronavirus cases. Further, the U.S. Federal Reserve Chair warned that the outlook for the world’s biggest economy was “extraordinarily uncertain”.
Most market participants remain focused on the growing likelihood that major economies will continue to recover.
The USMCA trade pact between the United States, Canada and Mexico, replacing the 26-year-old NAFTA, took effect on Wednesday. As the deal kicked in the coronavirus had all three countries mired in a deep recession. Key differences between the two deals include: Auto manufacturing boost, labor laws strengthened, more market access for dairy farmers, updating NAFTA for the digital era
London and Brussels blamed each other last week for missing a June 30 deadline for assessments on financial market access from January.
UK markets took a hit from a worse-than-expected GDP reading, as the UK economy contracted by 2.2% in the second quarter.
Annual inflation in the Eurozone accelerated to 0.3% in June from a four-year low of 0.1% in May.
Canada’s GDP contracted by 11.6% in April, after a decline of 7.2% beforehand.
START TRADINGLQDFXperts – US infections resurgence blurs timely recovery
Market activity was subdued following the July 4 holiday in the United States after a week characterized by dropping FX volatility. Major currencies have been largely rangebound. A steady US infections resurgence has discouraged some investors from taking big positions in the currency market.
EUR/USD showed limited movement for a fourth straight week. The greenback has been locked into narrow trading ranges recently as concerns about a US infections resurgence offset growing optimism about the economy. The eurozone continues to exhibit weak economic conditions. But the euro has been able to hold its own against the dollar and this trend could continue this week.
GBP/USD gained 1.1% last week, its first weekly win against dollar in four, after losing 2.7% in June. The pound remains 6% weaker so far this year, but it has recovered from the lows in mid-March. Implied volatility on the pound – as shown by options markets – remains elevated compared with other currencies.
For a third straight week, Dollar/yen showed little movement. Despite the economic turmoil across the globe, the Japanese yen has not lived up to its safe-haven reputation. The dollar edged up to 107.74 yen on Monday in Asia following a 0.3% gain last week.
The Australian dollar gained a 1.2% last week. The Aussie has surprised many with its huge gains in recent months. With AUD/USD soaring 12% in Q2, RBA policymakers will have to give some thought to raising rates.
The USD/CAD gained 1% last week, its best weekly gain in a month. The Canadian dollar lost close to 5% in March but has since recovered much of these losses. USD/CAD appears to have changed course following the failed attempt to test the June high. The reversal from the March low (1.3315) may continue to unravel in July.
The week ahead – Sharp rebound in activity along with new infections
Investors awaited data expected to show the U.S. services sector stopped contracting. This may give further hope to an economic recovery from the coronavirus pandemic. Economic data from Germany and the eurozone may probably show a sharp rebound in corporate activity and retail sales.
- On Monday (06.07) investors are looking to US ISM Non-Manufacturing PMI. The index may probably rise to 50.0 in June from 45.4 in the previous month, indicating activity stopped shrinking. Also, Germany, the euro zone’s largest economy, will release industrial orders for May. Retail sales for all of the eurozone will also be released later on Monday. Both indicators will probably recover strongly from large declines caused by the spread of the coronavirus.
- The Aussie is another market focus ahead of a Reserve Bank of Australia (RBA) policy meeting on Tuesday (07.07). Analysts expect rates will stay at 0.25% amid signs Australia’s economic downturn will not be as dire as first feared.
- On Thursday (09.07) investors await the US Unemployment Claims. Jobless claims continue to drop, as the US labor market slowly shows signs of recovery. The indicator dropped to 1.42 million last week, down from 1.48 million beforehand.
- On Friday (10.07) the US Producer Price Index and the Canada Employment Report will be under the spotlight. Canada’s economy rebounded from a loss of 1.99 million jobs in April, with a gain of 289.6 thousand in May. Analysts are expecting better numbers in June, with a forecast of 550.0 thousand. The unemployment rate climbed from 13.0% to 13.7% in May, but the estimate stands at 12.5%.
Follow this week’s economic calendar.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, CNBC, BBC, The Guardian