Market Commentary – June 23, 2020

Kevin Jock

23rd June 2020

  • US-China deal still “fully intact.” Markets bounce around
  • Equities saw modest gains yesterday, led by tech stocks

     Markets confused after White House Advisor Navarro said the the US-China trade deal was “over” and linked it to Beijing not sounding the alarm on coronavirus earlier, Reuters reported. Shortly after the comments by Navarro, president Trump tweeted: “The China trade deal is fully intact. Hopefully they will continue to live up to the terms of the agreement!”

Figure 1 (Source: Refinitiv Eikon): EURUSD dip on White House trade deal comments

     Asian stocks rallied significantly since touching lows in March on global economy concerns surrounding coronavirus fallout. “[Recent] gains have been driven by hefty central bank stimulus around the globe and gradual easing of restrictions, although worries about a second wave kept investors jittery,” Reuters posted.

     THB saw some price action on back of risk appetite swings coming from the White House’s earlier comments about the US-China trade talk. Next up for the Baht will be tomorrow’s monetary policy decision, the main policy rate is expected to remain unchanged at 0.50%. The bank of Thailand will also be bringing in a new Governor in coming days.

     Elsewhere, aggregate Retail EM positions are net long. PLN positive retail sales data drove its recent outperformance. NBP likely to stay course with its asset purchase program with willingness to intervene and push PLN weaker. The National Bank of Poland prefers a weak currency during the pandemic. The central bank is being closely monitored- last week’s rate cut was a surprise after it unexpectedly cut rates last month in an effort to buffer the economy from the virus.

     RUB swings against USD and EUR. The Central Bank lowered its official dollar rate. Russia has seen low inflation and a more stable currency. After a year without talks, the Nuclear weapon discussion between the US and Russia have restarted.

     GBP saw gains on back of Bank of England member Bailey thinking the central bank should shrink the balance sheet before a rate hike. As bloomberg reported, “Bank of England Governor Andrew Bailey signaled a major shift in the central bank’s strategy for removing emergency stimulus, stressing the need to reduce the institution’s balance sheet before hiking interest rates.”

Headliner Review            

  • Focus shifts from stabilizing the downturn to supporting a recovering economy as Macklem re-affirms Bank of Canada will continue weekly federal bond purchases of 5 billion during last night’s video conference by Canadian Clubs and Cercles. As economic indicators have been inconsistent, rates are expected to stay low for a prolong period assisting household and business borrowing cost. Macklem discarded the possibility of utilizing negative rates to shore up the economy, a measure other central banks have implemented, citing financial institutional distortions as a potential consequence.
  • Though US existing home sales posted disappointing lower than expected figures of 3.19M (compared to 4.15M), signs of economic recovery from forward-looking indicators coming out Australias’ flash manufacturing and services PMI sets a positive tone. 49.8 and 53.2 from 44.0 and 26.9 respectively.
  • Other news. EU consumer confidence index still negative but recovering at -15 and Japanese flash manufacturing PMI stabilizing at 37.8.
  • AUD PMI figure shows “return to growth of Australian private sector output in June amid a further loosening of restrictions related to the coronavirus disease 2019 (COVID-19).”
  • JPY Flash PMI report shows “Flash PMI data for June show us that economic activity in some parts of Japan has picked up at the second quarter.”

Up Next

     Today brings a flurry of June PMI prints out of EUR, GBP, USD. The prints will be among the most important macroeconomic news of the week, showing us an indication of economic impact from the virus outbreak

     Tomorrow the RBNZ will deliver its OCR decision and leave the cash rate at 0.25%, with a dovish tone and markets are expected to react minimally.

     Chinese Banks will absent Thursday in observance of the Dragon Boat Festival. 

Headliners to watch

  • Key PMI data of US, Europe and Japan will be released today. It is expected to impact markets as EU prepare to reopen restaurants and shops and recover.
  • Reserve Bank of New Zealand rate statement about monetary policy will be released tomorrow. No change expected

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Antony Tan
Ben Li
Kevin Jock