Trade ideas & Daily market report June 30th 2020
Euro-zone industrial sentiment recovered to -21.7 for June from -27.5 the previous month, although this was weaker than consensus forecasts. The services-sector index also failed to match market expectations with a recovery to -35.6 from -43.6 previously, denting expectations of a rapid recovery.
The German CPI inflation rate increased to 0.9% from 0.6% and compared with market expectations of 0.6%. The data may ease ECB fears that deflationary pressures will take hold, especially if Tuesday’s Euro-zone data is also above consensus forecasts. The central bank will, however, maintain a highly expansionary monetary policy in the short term. EUR/USD advanced in European trading, but was unable to attack the 1.1300 area.
The Dallas Fed manufacturing index recovered to -6.1 from -49.2 previously and above market expectations of -22.0. Regional manufacturing surveys have been strong which suggests there may be a strong reading for the National ISM release on Wednesday. The dollar overall regained ground during the day with some indications that the US currency would gain support from month-end positioning. EUR/USD retreated to the 1.1220 area around the European close.
In prepared comments ahead of Tuesday’s congressional testimony, Fed Chair Powell stated that recent data offered some positive signs, but output and employment were far below pre-pandemic levels. The economy had entered a new important phase sooner than expected while the path ahead is uncertain while he continued to back strong stimulus support for the economy. EUR/USD dipped again to trade around 1.1225 in early Europe with solid underlying demand in global markets.
US equity markets overall were little changed into the New York open as overall confidence remained fragile and USD/JPY held above the 107.00 level.
The latest data from Florida reported a decline in new infections to below 5,300 for Monday from over 8,500 previously, although there is usually a significant drop on Mondays. Statistics overall painted a slightly less negative picture, although there were concerns over weekend impacts and Tuesday’s data will be watched closely.
US equities posted limited gains and the Japanese yen was unable to gain significant support. With the US currency securing wider gains, USD/JPY strengthened to highs around 107.80. Equities held a firm tone following Powell’s comments, although the dollar failed to hold its best levels in New York.
China’s manufacturing PMI index edged higher to 50.9 from 50.6 previously and above consensus expectations of 50.4 while the non-manufacturing index strengthened to a 7-month high of 54.4 from 53.7. Exports and domestic retail sales were weak, however, and manufacturing employment also declined. The data overall helped underpin risk appetite. Japan’s industrial production declined 8.4% for May compared with expectations of 5.4% and USD/JPY was slightly stronger around 107.75.
UK mortgage approvals declined further to a record low of 9,300 for May from 15,600 previously and below consensus forecasts of 25,000 as May’s re-opening of the housing market failed to provide an immediate lift. There was a further decline in consumer lending of £3.4bn for May after the £7.4bn slide previously. Bank of England data also recorded a surge in borrowing by small businesses with the funding needed for survival given that substantial parts of the economy remained under lockdown.
As the latest round of Brexit talks got underway, the EU Commission stated that its overall message for this week as well as coming weeks and months is to make progress and secure a deal. The remarks did not suggest expectations of a quick result and market confidence remained fragile.
Sterling overall remained under pressure with a GBP/USD retreat to 1-month lows near 1.2250 while the EUR/GBP strengthened to 3-month highs near 0.9180 before a correction to 0.9140. Sterling stabilised on Tuesday as global risk appetite held firm, although sentiment remained notably fragile as a local lockdown in Leicester reinforced market unease. First-quarter UK GDP was revised down to -2.2% from -2.0% previously with a sharp widening of the currency account deficit reinforcing a lack of confidence and GBP/USD was held below 1.2300 while EUR/GBP settled around 0.9140.
Swiss sight deposits increased to CHF683bn in the latest week from CHF680.1bn the previous week. After four weeks of staying out of the market, the data suggested that the National Bank has engaged in limited intervention during the week to curb franc gains, although not on the scale seen during the March-May period.
EUR/CHF advanced to near 1.0700 and was resilient in New York despite euro/dollar losses. USD/CHF advanced to the 0.9520 area before stalling while EUR/CHF stabilised just below 1.0700 on Tuesday as firm risk conditions limited potential franc demand.
AUD/USD + USD/CAD
The Australian dollar was able to make only marginal gains ahead of the New York open and then drifted lower as the Euro lost traction with AUD/USD weakening to 0.6850 after failing to test the 0.6900 level.
Reserve Bank of Australia Deputy Governor Debelle stated that monetary support is likely for a prolonged period and a rate hike is years away, but he did not see the need for negative interest rates.
Risk appetite was underpinned by China’s PMI data with AUD/USD strengthening to the 0.6880 area.
Canadian building permits increased 20.2% for May following a 15.4% decline the previous month and above consensus forecasts of a 15.4% increase.
Higher oil prices provided an element of Canadian dollar protection and USD/CAD hit selling interest close to 1.3700 after finding support near 1.3650.
There was little change on Tuesday as oil prices failed to make further headway.
The Norwegian krone was held in narrow ranges on Monday and initially held a slight weakening bias as it failed to draw support from gains in oil prices and firmer European equities.
EUR/NOK settled around the 10.90 level before retreating and it traded around 10.89 on Tuesday amid a lack of conviction over global growth trends. USD/NOK made fresh gains to the 9.70 area.
Sweden’s trade account held in surplus for May with the krona held in tight ranges during the day. The krona edged weaker on Tuesday with EUR/SEK just below 10.50 while USD/SEK strengthened to just above 9.35.
Euro-zone equities opened lower, but gradually gained some traction amid hopes for economic recovery with Wall Street gains also providing an element of support in late trading.
The German DAX index posted a 1.1% gain with a 1.4% advance for the Spanish IBEX index.
Major UK stocks were underpinned by the soft Sterling tone and recovered from early losses with further gains in late trading as Wall Street moved into positive territory and the FTSE 100 index gained 1.0%.
US equities were little changed initially as caution dominated, but support gradually strengthened as markets attempted to take comfort from the latest coronavirus data. The S&P 500 index gained 1.45% as Powell promoted further support.
Asian equities made headway as China’s PMI data provided an element of support. There was, however, a retreat in late trading on economic jitters and US futures edged lower.
Japan’s Nikkei 225 index gained 1.25% as the dollar strengthened while the Australian ASX index advanced 1.4% with solid support in the commodities sector.
China’s Shanghai index posted a 0.5% gain in late trading, but Hong Kong’s Hang Seng index was marginally lower as China passed the new Hong Kong security laws.
Oil prices gained an element of support from generally stronger global economic data, although there were still important reservations surrounding global coronavirus developments.
WTI advanced to the $39.30 p/b area at the European close as sentiment held firm. WTI held around $39.50 p/b on Tuesday with Brent around $41.70 p/b as China’s PMI data provided an element of support.
Precious metals maintained a firm tone on Monday, but gains were stifled by a firm US dollar and gold fell just short of fresh 7-year highs.
Gold settled around $1,770 per ounce with silver settling around $17.80 per ounce. Gold was little changed on Tuesday with silver edging towards $17.90 per ounce.
Cryptocurrencies tended to lose ground ahead of the New York open with bitcoin dipping to test the $9,000 area.
There was a more constructive tone after the New York open as overall risk appetite improved and bitcoin strengthened to the $9,150 area.
There was still an important element surrounding overall risk conditions and, although there was an advance to the $9,250 area gains faltered later in the session with a retreat to the $9,150 area.
After finding support near $220, Ether posted a modest advance to the $225 area with little change on Tuesday after a brief move to the $230 area.
Major events for the day ahead: (times in BST)
10.00: Euro-zone CPI inflation
14.45: US Chicago PMI index
15.00: US consumer confidence
15.00: Bank of England Cunliffe speech
17.30: Fed Chair Powell testimony