MACRO MENU: 15 - 19 JUNE 2020
This is the main question on investors' minds this weekend. After a consistent multi-week drift lower in the Cboe volatility index (VIX), Thursday's sell-off saw a complete reversal, closing at its highest level since April 23rd as fears of a second wave of the virus took hold.
Despite these latest developments my belief remains that stocks will once again find their feet and start the slow climb back higher. But last week's sell-off was a timely reminder for market participants not to become too complacent, and so we continue to monitor the trajectory of new cases with strong vigilance and willing to be flexible in adapting our short-term view upon the facts presented in incoming data.
Time to start delivering on your promises
The EUR has had a solid innings of late. Whether it be Germany over delivering on their second stimulus package, the ECB topping market expectations with their QE top-up, or Europe finally finding common ground on a shared effort to counteract the pandemic, the single currency has prospered on the united response and general USD weakness.
For the proposal to succeed it requires unanimous approval but resistance is likely to remain from the "frugal four" (Netherlands, Austria, Denmark, Sweden). An inability to strike an accord to push the programme forward this summer puts Southern European bonds at risk with the IT/GE 10-yr yield spread ripe for a reversal of the tightening seen over the last six weeks.
Last week, the UK economy shrunk by a quarter with output falling at the fastest monthly rate on record. “April’s fall in GDP is the biggest the UK has ever seen, more than three times larger than last month and almost 10 times larger than the steepest pre-Covid-19 fall,” said Jonathan Athow, deputy national statistician for economic statistics at the ONS.\
George Buckley, an economist at Nomura, said the BoE is likely to add an extra GBP 150bln to its QE scheme, giving policymakers breathing space to monitor the economic recovery in the UK. This means that come Thursday's meeting, anything less will likely be met in disappointing fashion.
Separately, UK Prime Minister Boris Johnson and EU Commission President Von der Leyen are set to hold talks on Monday. Reports in the UK press this weekend suggest the PM will attempt to bring urgency to Brexit talks by warning both sides are heading for No Deal if the pace of negotiations is not accelerated immediately.
Come on Jay, give us a smile!
White House Advisor
Unfortunately for Powell this is not the last he's likely to hear of it, as he is set to testify via video conference on Tuesday before the Senate Banking Committee and to the House Financial Services Committee the day after.
In years gone by, the semi-annual testimony has acted as a key platform for the Fed Chair to communicate thoughts on current conditions and future expectations but given the delivery of the latest Fed statement and Summary of Economic Projections (SEP) last week, I do not anticipate anything market moving.
WEEKLY TRADING SET-UPS FROM SAM NORTH
Senior trader and mentor Sam North provides a technical look at the charts and his set-ups for the week ahead.+
- Data: Chinese Retail Sales, Industrial Output & US NY Fed Manufacturing
- Event: UK PM Johnson & EU Commission President Von Der Leyen meeting
- Speakers: Fed’s Kaplan
- Data: German CPI (Final) & ZEW, UK Unemployment, US Retail Sales, Industrial Production & Manufacturing Output
- Event: BoJ Rate Decision
- Speakers: Fed Chair Powell Testimony To Senate Banking Committee
- Supply: UK
- Data: Japanese Export/Imports, UK, EZ & Canadian CPI, EZ CPI, US Building Permits & Housing Starts, New Zealand GDP
- Event: OPEC Monthly Oil Market Report
- Speakers: Fed Chair Powell Testimony to House Committee On Financial Services, Mester, ECB’s de Guindos & Mersch
- Supply: UK, German & US
- Data: Australian Employment, US Initial Jobless Claims & Philadelphia Fed Business Index
- Event: SNB, Norges Bank & BoE Rate Decisions, JMMC Meeting
- Speakers: ECB’s de Guindos, BoE’s Broadbent & Tenreyro
- Supply: Spain, France, US, ECB TLTRO
- Data: Japanese CPI, German Producer Prices, UK Retail Sales
- Event: CBR Rate Decision, European Council Video Conference
- Speakers: Fed Chair Powell & Rosengren
- Expiries: Quadruple Witching
Follow me on Twitter @AWMCheung for daily insights and commentary.
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