Market Commentary – June 25, 2020

Kevin Jock

25th June 2020

Equities down, USD strengthens, China celebrates the Dragon Boat Festival

     USD gained strength Wednesday on broader risk sell off from the virus concerns after Tuesday’s sell-off and found the green against each G7 currency. AUD and NZD were hit the hardest.”Surging COVID-19 infection cases weigh down US Indices a second time this month as investors sentiment moves to risk-off. Concern is centered around intensifying cases within the US. California, Florida and Texas broke single day record highs with the US estimated to be hitting 180,000 deaths by October,” Bloomberg reported

Figure 1 (source: Refinitiv Eikon): US equities slip on further covid 19 concern

     In Europe, ECB’s Lane commented not to get too excited by solid euro zone data, as Reuters posted. There remains lots of uncertainty surrounding the virus. In recent comments he said “the scale of the contraction has been so large that overall activity will remain far below the pre-crisis level and the scale of the initial rebound in these weeks won’t necessarily be a good guide to the speed and robustness of the recovery.”

     Elsewhere, The bank of Thailand held policy rate at 0.50% but lowered the growth forecast. ZAR’s mini budget review showed that the main budget deficit widened to 14.6% of GDP and gross debt to GDP rose to 82%. CZK’s central bank held rates with a hawkish undertone in the release.

Headliner Review

  • Optimisms in the air within the EU as investor expectations and business confidence have risen sharply month on month.
    • Credit Suisse Economic Expectations for Switzerland rose from 31.1 to 48.7. Stark contrast from the bleak outlook surveyed from March lows.
    • German ifo Business Climate posting second months of gains and even exceeding expectations of 85.0 sitting at 86.2. Ifo President stating as the current economic climate stabilizes “German businesses see light at the end of the tunnel”
    • Belgium NBB Business Climate whilst still negative, was a step in a positive direction rising sharply from -34.4 to -22.9. Though historically pessimistic, a gradual and evident recovery is boosting business managers’ morale.
  • US house prices remain relatively mute seeing a 0.2% increase MoM against analysts’ consensus of 0.3%. Seasonally, a spring bump in demand would pull house prices higher, however lockdown restrictions from COVID-19 has held off household plans.
  • Crude oil slides as inventories exceeds expectations. Analyst predicted 1.2M, figures announced at 1.4M. Expectations saw easing lockdown restrictions and a returning labour force would spur the global economic engine. Nevertheless, yesterday figures reveals demand improvement going slower than had hoped.

Up Next
     China, Taiwan and Hong Kong are out for local Dragon Boat Festival holiday today, thin liquidity is expected until London markets open.

     On the data front, The Turkish Central bank is expected to see a 25bps cut to 8%. And concerns inflation outlook along with increased risk premium, reduced inflows, expanding external deficit create a difficult case for additional easing. One key focus will be on the increase in base money.

     RUB will be in focus in the coming week for announcements on how the proposed 200 constitutional changes will impact daily life in Russia. One key change will decide if President Putin may pursue an additional two more six year terms after his presidency is due to end in 2024.

     Mexico’s central bank is expected to cut key interest rates by 50bps in an effort to alleviate the economic impact from the coronavirus pandemic. Focus will be on the tone of the statement, which is expected to be dovish. CPI data was close to expectation.

     The new-look US bank stress test will be released today. The unknown is the raise of each banks’ overall capital requirement. The closer that requirement gets to the bank’s actual capital level, the greater the chance it must cut distributions. Reuters posted.

Headliners to watch

  • European Central Bank Monetary Policy Meeting Accounts about the economic and monetary analyses and on the monetary policy stance.
  • US Core Durable Goods Orders m/m expected to rebound from -7.7% to 2.1%.
  • US Durable Goods Orders m/m expected to rebound from -17.7% to 10.3%.
  • US Final GDP q/q expected to remain at -5%.
  • US Unemployment Claims expected to decrease from 1508k to 1320k.


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Antony Tan
Ben Li
Kevin Jock