Week Ahead – Jitters continue into busy week

Key Economic Releases and Events

Monday 29th June

Tuesday 30th June

Wednesday 1st July

Thursday 2nd June

Friday 3rd June

Country

US

The Fed releases the Minutes to their last policy decision and may start to show some signs they are worried about inflation.  Policymakers will likely reiterate they are flying blind given the uncertainty about the course of COVID-19 and will likely keep all options on the table for further easing.  Negative rates are probably not on their radar unless we see the prospects of longer and deeper recession grow. 

A lot of attention will fall on Texas and the halting of their reopening of its economy.  Texas was one of their first states to reopen and if they end up having to return to stricter restrictions, Wall Street could anticipate a much deeper recession as the V-shaped recovery could become a W-shaped one.  Coronavirus cases are growing by at least 5% in 31 states and this could see lost reopening momentum mean many-out-of-work Americans will struggle to find employment. 

US Politics

With just over four months to go to the US Presidential election, everyone is focusing on former-VP Biden’s strong performance in recent battleground state polls.  President Trump is starting to see the deficit widen in Michigan, Wisconsin, Pennsylvania, Florida, Arizona, and North Carolina.  The coronavirus is surging again and many states may be forced to pause or reverse reopening, as new coronavirus and hospitalizations surge. 

Democrats are eagerly awaiting former-VP Biden’s decision on his running mate.  Prior to COVID-19, the Democratic National Convention was originally scheduled in July, meaning we should have found out his decision by June.  Since the convention was delayed till August 17th, he will have more time to evaluate his candidates.  Biden will turn 78 a few weeks after the election, so his VP selection will be critical for many voters.

Brexit

This week there has been some signs this week that compromise is possible on some of the more contentious areas of the trade deal but an agreement is still some way off. Thankfully an intense summer of negotiations are planned. Michel Barnier warned that “the real moment of truth” will come in October, which throws the summer deadline out of the window. But let’s face it, that was never going to happen.

Sweden

The Riksbank meets next week but no change is expected, with interest rates currently sitting at 0%. There may be some movement in the next quarter but a lot can change in that time, in the current environment. 

China

China is embroiled in multiple diplomatic conflicts at the moment, from US/China trade, Hong kong’s security law to the standoff with India in the Himalayas. Any of these could quickly escalate and have negative repercussions across markets around the world.

Sunday, China releases Industrial Profits YTD for May. Expected-22.0%, a slight improvement. Worse than expected could see Asia markets sharply lower on Monday morning. Official and unofficial Manufacturing and Non-Manf PMI’s released throughout the week. Potential for short-term volatility.

Hong Kong

Hong Kong security law outline poorly received. 28th June meeting in Beijing to decide exact wording. That has potential to cause market volatility next week when released. Increased protests and depending on wording, negative impact on stock market.

India

Economy continues reopening but Covid-19 cases continue spiking, markets negative. Standoff with China continues in the Himalayas, the situation is tense and could escalate rapidly. No significant data.

Australia

Australian Dollar remains under pressure as bull-market correction continues. High potential for more downside. Australia stocks and currency could have a significant vulnerability to sudden downside shifts in sentiment as a proxy for global risk as momentum in global recovery trade appears to be ebbing.

Community infections are increasing again in Victoria, Supermarkets limiting supplies. Markets negative.

Friday Australia Balance of Trade, short-term volatility only.

Japan

North korean tensions have faded, markets positive. Covid-19 risks in Tokyo and Osaka. Heavy data week ahead. Ind. Prod, Tanken, Ret.Sales. Expected to show Japan’s recovery is very slow. Local markets negative.

Market

Oil

The oil demand recovery story was dealt a blow this week after the US registered the biggest-ever jump in coronavirus cases, suggesting many states may have to visit regional lockdowns soon.  States will do their best to avoid a complete reversal with reopening phases, so the economic recovery should not complete stall out. 

WTI crude has not been able to do much after capturing the $40 level and seems destined to continue to consolidate between the $35 and $42 level over the next couple weeks.  The rapid demand rebound is not happening, but stimulus efforts, pauses in reopening of businesses, improved treatments for the virus are limiting the downward pressure on crude prices. 

Oil prices are slightly higher in early trade mirroring the broader fluctuations with US equities.

Gold

After nearly testing the $1800 an ounce level earlier in the week, gold prices are consolidating as the US dollar firms up.  Gold will continue to see strong support as the coronavirus situation deteriorates globally and as central banks and governments will continue to pump in more stimulus to avoid strains to the financial system and to salvage as many jobs as possible. 

Gold prices (in dollar-terms) seem destined for record high territory as the latest spike in COVID-19 cases will see a much slower economic recovery that will keep the stimulus trade going strong.  The global recession might be deeper than expected, but a scramble for cash (extreme risk aversion forces investors to sell their gold positions for cash) will not likely take place for gold given the optimism with eventual rebound and breakthroughs on the treatment and vaccine front.

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