Market Commentary – June 19, 2020

Kevin Jock

19th June 2020

     Surge of new Coronavirus cases discourage hopes of how quickly the economy can recover. GBP nears two-week low on concerns BoE isn’t doing enough to support economy. Trader flock to USD, world’s reserve currency. XAU traders lack conviction. Geopolitical uncertainty weigh on equities.

     Asian and U.S. indexes were range-bound. U.S. unemployed remains high amid. “Cleveland Federal Reserve Bank President Loretta Mester said it could take a year or two for the U.S. economy to return to pre-pandemic levels, with the gross domestic product declining by 6% in 2020 and the unemployment rate still around 9% by year’s end,” a Reuters report pointed out.

     GBP nears two-week low on concerns BoE isn’t doing enough to support economy. Retail sales data will be closely monitored as positive figures suggest rebound in consumer spending. EUR fogires follow suit, grinding lower this week.

Figure 1 (source Reuters Eikon): GBP and EUR chop lower over the last week

     Australian and New Zealand economies struggle, as yesterday’s figures released show. AU job security puts government’s economic strategy into question. The RBA suggests deploying more fiscal stimulus to speed up recovery. RBA board member Harper says a sharp cutoff would damage the recovery and potentially drive unemployment even higher. Australia also faces ongoing cyber-attacks which have covered “all levels of government” as well as essential service providers and businesses, PM Morrison said. New Zealand’s economy saw a 1.6% decline in the March quarter, the largest drop in 29 years.

Figure 2 (Source: International Monetary Fund. IMF DataMapper): World unemployment hits rates last seen around 2008 Financial Crisis  

     Oil Prices rose slightly in Asia on hopes that output cuts will floor on prices. OPEC producers and allies promised to meet their supply cut commitments and two major oil traders said demand was recovering well, Reuters posted.

Headliner Review

  • Contradictory evidence between steeper than expected deteriorating labour market and stabilizing economic output left UK monetary policy unchanged. With non-essential stores set to re-open and unprecedented fiscal stimulus, divide amongst MPC members have risen with some arguing the economy is recovering faster than predicted whilst others note once government handouts withdraw later in the year, furloughed employees will be absorbed back at a slower pace than forecasted.
  • Out of US, worrying unemployment claims as figures posted bucked expectations of 1,300K but was instead 1,508K, only 58K less than previous months. Further reinforcing concerns voiced by Fed’s Powell early in the week of economic “significant uncertainty” as lockdown rules ease. Voicing a similar story to the UK, evidence so far within the US illustrate a lagging labour market, whilst forward-looking indicators such as Philly Fed’s manufacturing index rebounded back positive to 27.5 from -43.1.
  • On a positive note, ADP Canada posted an increase of 208,400 jobs in May from April’s -2,361,714 job losses whilst Aussie retail sales snapped two months of falling turnover posting 16.3% increase MoM from -17.7% MoM.

Up Next

     European Union leader will meet virtually for a summit today. German Chancellor Angela Merkel pushed EU member states to come to agreement on an economic recovery package before summer recess in August. Italy and Spain have been the worst-hit European countries

Headliners to watch

  • UK Retail Sales m/m expected to rebound from -18.1% to 6.3%. It appears a gradual retail recovery.
  • Canada Core Retail Sales m/m expected to drop from -0.4% to -12.7%.
  • Canada Retail Sales m/m expected to drop from -10% to -15%.
  • Federal Reserve Chair Jerome Powell will speak at GMT 05:00 about building a resilient workforce during the COVID-19 era. Markets await US Fed Chair Powell’s speech amid lack of significant US economic news.
  • RBA Governor Philip Lowe will speak about COVID-19 and the global economy on Sunday GMT 23:00.

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Antony Tan
Ben Li
Kevin Jock