Coronavirus dominated headlines over the weekend and once again is the lead story as we begin the trading week this morning. Florida reported 15,299 new coronavirus cases on Sunday, the highest single-day total for any U.S. state since the pandemic began. Meanwhile, the U.S. has reported more than 60,000 new cases daily for three days in a row now, bringing the national total to more than 3 million cases, according to data from Johns Hopkins University. While the virus continues to be of great concern, the market continues to absorb all this information relatively well as this seems to be a function of vaccine hopes, lower fatality rates vs. Mar/April, the avoidance of lockdowns, and the lack of a resurgence in the Northeast, especially New York City. DOW Futures are higher this morning, indicating a positive opening to the US equity markets later today of around 110 points. The USD is trading mixed against the major currencies, weaker against the EUR and CAD, slightly higher against the JPY and GBP. Earnings season is set to kick off this week with the larger financial institutions, as well as other companies set to report their second-quarter results. JPMorgan, Citigroup, and Wells Fargo are scheduled to report on Tuesday. Pepsi will report earnings on Monday before the market open. Corporate profits are expected to fall by 44% in the second quarter, which would be the biggest drop in quarterly earnings since the fourth quarter of 2008, according to data released by Refinitiv. There is the expectation that the market may shrug off the sharp profit decline as long as companies signal recovery on the horizon. There is a bunch of economic data scheduled to be released this week and they should show the US economic rebound continued in June. Retail sales are expected to remain strong following the biggest monthly increase ever. Regional surveys from NY and Philadelphia are also expected to show the recovery is heading in the right direction, but further stimulus may still be needed. Several Fed Presidents speak this week’s and they will likely reiterate that the Fed is ready to act further if needed. US Treasury yields are slightly higher this morning, with the 10-year note trading at 0.6348%, while the 30-year bond is trading at 1.3276%. The correlation between the USD and equity markets continues and positive DOW, traders taking on risk, leads to a negative USD.
EUR/USD is trading in the middle of its overnight range as we begin the North American trading day. Technically, the EUR remains in a bullish trend as the 50-day MA looks to break the 100-day MA on the upside. RSI levels are neutral at the moment and a break higher would not be a surprise. Traders will begin to focus on Thursday’s ECB meeting. The ECB is unlikely to add any stimulus this week, with economic prospects seemingly improving. The Pandemic Emergency Purchase Program was already increased by €600 billion to €1.35 trillion in June and extended by six months to the middle of next year so there will be no rush to add to it again, although there is an expectation that they will need to later this year. EU leaders will meet late next week for further discussions on the recovery fund, with some countries including Ireland pushing for a Brexit fund to be included in the budget in the event of no-deal being agreed by the end of the year. According to Spanish Foreign Minister Arancha Gonzalez, the EU joint borrowing funds is not charity. In an interview with Belgian radio station RTBF earlier today, Gonzalez was quoted saying, “All countries involved will contribute to reimbursing the debt, even northern countries dubbed frugal. It is not like the Netherlands is providing charity to Spain or France.” EU leaders will be meeting July 17-18 to decide on the EU’s long-term budget and coronavirus recovery fund.
GBP/US is trading near overnight lows this morning. The convergence of the 50 and 100-day moving averages towards the downside is putting pressure on the pound. RSI levels are moving lower, currently at 42, and headed towards the oversold 30 area. Continued Brexit related uncertainly is weighing on the pound, exerting downward pressure. Bank of England governor Andrew Bailey will be making a speech later this afternoon, and traders will focus there for any short-term trading thoughts. Last week’s announcements that were aimed at stabilizing the economy and protecting jobs are still being digested by traders. This week’s jobs report will not show the full impact, but as months go by, the unemployment rate in the UK is expected to rise rapidly. Uk Justice Minister Robert Buckland, speaking to Sky News this morning said, “we will continue to be robust and frank with China, where we think they have overstepped the mark.” He also said that “Britain’s relationship with China will have to be honest if it is to endure.” The UK is one of many countries that has seen its relations with China pushed to the limit, following the new regulations and laws passed by China regarding Hong Kong. Look for continued pressure on the pound.
USD/JPY has turned higher over the last hour of trading, moving away from safe-haven territory that it had been enjoying through most of the overnight. This abrupt move looks to be a “short-covering play”, as the currency pair had failed to break support levels. RSI is well overbought at 81, and a reversal lower for USD/JPY should occur. Overnight, economists from HSBC put out a report that the Japanese Yen is currently the best safe-haven asset. The report stated that “the pandemic and associated economic lockdowns have created heightened uncertainty around the US economic outlook.” As USD/JPY approaches resistance levels, expect renewed USD/JPY sales.
USD/CAD is trading near the lower end of the overnight range, although oil prices are lower this morning. US Brent crude futures fell $0.27 to $42.97 per barrel, while US West Texas Intermediate crude futures fell $0.28 to $40.27 per barrel. The resurgence in virus cases over the last week has made it necessary for some U.S. states to improve tighter travel restrictions thereby easing the demand for oil in the world’s largest consumer. OPEC’s Joint Ministerial Monitoring Committee meets on Tuesday and Wednesday to discuss the next level of production cuts. Canada’s main event this week if the central bank meeting scheduled for Wednesday. Analysts expect the BoC to keep rates unchanged and there have been no talks of the possibility of negative interest rates. In his latest comments, BoC Governor Macklem indicated a central planning scenario for output and inflation would be discussed. There is an expectation that rates will move until the fall meetings. Expect the loonie to re-align with oil prices during the day.
China’s Consumer Price Index (CPI) rose 2.5% year-on-year in June after rising 2,4% in May. According to the report, this was led by higher food price inflation while core inflation (excluding food and energy) slipped to 0.9% from 1.1% in the two preceding months. Producer Price Index (PPI) deflation eased to -3.0% year-on-year in June from -3.7% in May marking the fifth straight month of declines. The data indicates that the price pressure has remained weak in June despite continuing measures to boost demand and ensure ample market liquidity. According to economists, weak inflationary pressure supports monetary easing, but PBoC is likely to adopt a more cautious stance as the economy recovers. According to Bloomberg News, the US State Department has warned US citizens living in or traveling to China that they may face arbitrary arrest, the latest sign of deteriorating relations between Washington and Beijing. U.S. citizens may be subjected to prolonged interrogations and extended detention for reasons related to state security, the warning added. Tensions between the US and China have risen in the wake of the worldwide coronavirus pandemic, the article noted. The Global Times today reported that a "US travel advisory on China, citing “arbitrary detention” as an excuse, is a blatant distortion of facts in a bid to hype up a “china fear” sentiment among Americans, which will push the two countries further apart on the decoupling track." Relations between the two superpowers remain uncertain.