Market Commentary – June 18, 2020

Kevin Jock

18th June 2020

New confirmed Covid 19 cases continue expand globally. North & South Korea tensions continue. U.S. sees some recovery. US Crude Oil inventories jump. Aussie and JPY unemployment spikes. ISL outperforms.

     Focus remains on North and South Korea tensions. “South Korea’s chief nuclear negotiator will hold talks with officials in Washington […] amid flaring tensions with North Korea after Pyongyang blew up an inter-Korean liaison office and threatened military action,” Reuters reported.

     US data continues to support the narrative of a rebounding economy. Fed Chair Powell speech yesterday was in line with expectations, saying the Fed and Congress will need to keep their foot on the gas and support households until economic recovery is self-reinforcing. Powell made comments yesterday that the Fed will move to corporate cash bond purchases (away from ETFs).

     “A majority of Japanese firms said they have taken steps – from lay offs to pay cuts – to cope with the fallout from the coronavirus pandemic on the world’s third-largest economy” Reuters posted.

In the EM space:

     The Israeli Shekel was amongst the top performing currencies yesterday. Gov Yaron spoke commented earlier on the BOI’s recent efforts to provide stability and liquidity to the market, noting that the BOI may expand Quantitative easing.

     Last week’s comments from Central Bank of Russia Governor Elvira Nabiullina come into play this week as the CRB debates whether it will cut rates by 100/75/50 bps on Friday. “The CBR will likely refrain from pushing real policy rates into negative territory, which suggests that the maximum rate cuts in the second half of the year would be a total of 150 basis points to 4%,” Karabaczek told CNBC via email Monday.


Headliners Review

  • Further signs of recovery as US building permits rebound as expected from 1.07M to 1.22M. However as Fed’s Powell reiterated in last nights’ House Financial Services Committee. With 25 million American’s displaced from work, both the Fed and Congress will need to keep their foot on the gas and support households until economic recovery is self-reinforcing.
  • March quarter, New Zealand contracted -1.6% QoQ GDP not experienced before for 29 years surpassing expected figures of -1.0%. Non-essential business closures and international travel bans weighed heavily on domestic production. Concerns grow, New Zealand will enter its first recession in a decade. As the recent quarantine bungle saw UK travellers bringing coronavirus into the country after it was eradicated and with it, a re-implementation of lockdown rules.
  • Disappointing labour force figures coming out of Australia as the unemployment rate accelerated to 7.1% from 6.2%. Job losses at – 227.7K exceeding expectations of -105K dampening indications that the economic trough has stabilised. On a positive note, a recent assessment from the RBA bulletin suggest “many Australia households entered the economic contraction associated with the COVID-19 pandemic in a strong wealth position”. With even the most vulnerable households able to cover expenses three months out.
  • Deflationary pressure seen in both UK and Canada. With the former nation posting 0.5% YoY (from 0.8%) and the latter -0.4% YoY not seen since the GFC.
  • U.S. crude oil inventories jumped up by 1.2 million barrels from the previous week. crude inventories are ~15% above 5 year average for this time of year.


Figure 1 (source Reuters Eikon): Recent losses come in recent weeks after a substantial euro rally against the Swiss franc from May to early June. lightened restrictions from covid 19 were expected to help boost the economy. The pair will be closely watched surrounding SNB news.


Up Next

     Focus today will be on the Swiss National Bank’s policy rate update, which is largely expected to hold its long-standing negative interest rate. As uncertainly continues to engulf markets, FX players have been moving to safe-haven currencies like the franc, which has undermined Swiss exporters and put pressure on the nation’s inflation outlook, so the SNB has had to sell francs at the fastest pace in years to slow it’s advance. Some pressure has eased in recent days so a further cut to the rate is widely thought as unlikely.

     Attention later today will shift to the Bank of England. The central bank is expected to expand its quantitative easing program. Rates have been cut twice since the pandemic, from 0.75% to 0.25% to 0.1%. The BoE also announced £200 billion of new quantitative easing, making its bond-buying program £645 billion. Though unlikely to be implemented in the short term, comments from Gov Andrew Bailey are closely monitored for further comments on negative rates. The BoE gov told a parliamentary committee in late May that the possibility of taking Britain into negative rate territory was being reviewed.

     European Union leader will meet virtually for a summit on Friday. 


Headliners to watch

  • SNB Policy Rate expected to remain at -0.75%.
  • Interest rate of Bank of England expected to remain at 0.1%.
  • US Unemployment Claims expected to drop from 1542k to 1300k.
  • US Philly Fed Manufacturing Index expected to drop from -43.1 to -23.
  • US CB Leading Index m/m expected to increase from -4.4% to 2.4%


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Antony Tan
Ben Li
Kevin Jock