Daily Market Pulse

Covid uncertainty reigns global markets ahead of key Fed input and data

6 minute read


The U.S. dollar index, a benchmarking tool used to assess the performance of the greenback against a basket of six major currencies, fell 0.28% amid sustained momentum in equity markets. This was led by better than expected Tesla results which pushed stock markets higher, with the S&P 500 Index recording new highs during Monday trading session. However, the market mood remains mixed especially as Coronavirus cases continue to rise and authorities in several countries require vaccinations for public workers. With the Federal Open Market Committee coming up on Wednesday, market participants expect policymakers to leave policy unchanged, leaving the door open for tapering, although they have refrained from hinting at any imminent adjustments. Ahead of this, investors will remain tuned to the U.S. Durable Goods Orders for June, which is expected to post 2.1%, 0.2% lower than figures posted for May. Today, the greenback index is up amid Covid uncertainty and it is ahead of top-tier data releases coming up later today. 


The common currency edged 0.28% higher against the dollar despite IFO Business Climate surveys missing expectations. The EUR advanced amid sustained performances of companies in their earning reports which continue to push equity markets higher, especially in the U.S. with the S&P 500 and Nasdaq breaking new highs. However, during the early hours of the trading session, the market seems to have digested the IFO Business Climate impact, making the EUR retrace 0.19%, erasing gains from yesterday. We expect market participants to remain cautious ahead of the Fed meeting on Wednesday which will set the overall risk mood in financial markets. Additionally, Covid cases in Europe seem to have somewhat stabilized, and we could expect this to be reflected in E.U. morale indicators which will be released on Thursday. 


The British Pound rallied 0.74% against the USD during yesterday's trading session, amid euphoria in the U.S. equity market following the release of company earnings which continue to exceed expectations. The better than expected results helped build up a risk-on mood, especially after the U.K. reported that daily coronavirus cases continue to ease, reporting under 25k in their figures yesterday. With little in the way of data, market participants will remain focused on the virus numbers which we expect to continue edging lower as 70.5% of the adult population have been given their second jab. London Mayor, Said Khan, is urging PM Boris Johnson to relax isolation rules for vaccinated people who come into contact with an infected individual. 


The Japanese Yen closed yesterday’s session unchanged amid a broader uncertainty in market perception. The 10-year Treasury Yields remain subdued trading at 1.285% which continue to push the JPY higher amid rising covid cases and the upcoming Federal Open Market Committee (FOMC). Markets are jittery ahead of the Fed meeting and monetary policy statement from Chairman Powell on Wednesday. Market participants are surrounded by high levels of uncertainty amid the recent spike in Coronavirus cases and the likelihood that central banks might be forced to adjust monetary policy before previously anticipated. The governor of the Bank of Japan, Haruhiko Kuroda, is due to give a speech and provide a summary of opinions from policymakers with regards to the current situation in the Japanese economy.   


The Loonie remained relatively unchanged against the dollar, with a 0.09% variation during the Monday trading session. Coronavirus jitters continue to weigh on investors' sentiment and demand expectations on commodity prices. The West Texas Intermediate (WTI) crude oil price registered losses amid the growing Coronavirus cases globally which could derail the global economic recovery and slow the demand for fuel. However, equity markets continue to lead the risk on projection with Nasdaq and S&P posting new all-time highs. The clashing risk assessments on Equities and Crude Oil evened out the effect over the commodities-linked Loonie, and we expect to sustain similar levels ahead of the Federal Open Market Committee. 


The Mexican Peso retraced 0.69% against the dollar during the morning session on Monday and recorded gains throughout the afternoon, closing out the position only 0.06% lower. The mixed market sentiment sustains a volatile environment amid global uncertainty surrounding the spread of the virus and jitters around an economic slowdown ahead of the Fed meeting on Wednesday. Moreover, according to accounting firm Fixat, tax evasion in Mexico represented up to 6% of Gross Domestic Product (GDP), but thanks to an increased effort from lawmakers, tax debts recovered increased by 10% during the first quarter of 2021. The report suggests that 52% of this tax evasion is due to large taxpayers that avoid declaring revenues, while the remaining balance accounts for irregular tax payments and or individual business activities. 


The Onshore Yuan registered a day low, retracing 0.32% amid China’s tech crackdown, which is placing a significant amount of regulatory pressure, especially on technology companies. The slide on the Yuan is being driven by the “capitulation in Chinese Equities”, following the government's widening regulatory crackdown on the tech industry. Investors are nervous about the next step that regulators could take, so equity outflows are picking up, with Chinese equity markets dropping 4.22% in the case of the Hang Seng Index, and CSI 300 falling 3.53% amid investor sell-off. 


The Brazilian Real remained relatively unchanged against the dollar, posting 0.21% gains amid mixed risk sentiment perceptions due to an increasing number of Coronavirus cases globally, which has undermined the prospects of global recovery and corruption scandals which seems to be weighing on the popularity of the current government. Thousands of Brazilians took to the streets in different cities across the country to protest against the Federal government led by Jair Bolsonaro and its response to the coronavirus pandemic, calling for his impeachment. 


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