Despite the recent outburst of the Coronavirus, which has kept investor confidence low since early June, global markets closed out July with an uplift in sentiment, underpinned by strong earnings reports. This was led by the technology sector and an accommodative Federal Reserve opened to considering tapering its bond purchase program in the upcoming meetings, all while assuring that the stimulus will be sustained in the short term. Equity markets extended new all-time highs amid profit bonanza, with Nasdaq reaching 14,863 and S&P 4,422 respectively. Commodities linked companies followed the same trend, suggesting that sustained commodity prices are backed by households returning to spend their money outside their homes and a sustained recovery from China.
Equity Market Performance - S&P & Nasdaq
Source: Bloomberg
Governments continued to bet on high inoculation ratios as the best way to combat the resurgence of the Delta variant, picking up the pace of their vaccination programmes where possible, in order to avoid putting in place restrictions once again. Unfortunately, the spike in coronavirus cases has activated many red flags globally. Among them are delays in the U.K. reopening, a declaration of a state of emergency in different cities in Japan, and establishing centralized lockdowns in Australia, which are just some examples of how it has affected several markets. As rising Covid cases continued to deteriorate the market mood, economists revised down their growth expectations in economies severely affected by the latest wave of Covid, while jitters of a Chinese economic slowdown kept markets on suspense and commodity prices shaky, especially after the OPEC + fallout. The West Texas Intermediate (WTI) plummeted 7%, but recovered shortly after output quotas were agreed, edging the price above USD 70 amid improving conditions globally and resilience in the Chinese economy to sustain its demand.
COVID CASES Net Change
Source: Bloomberg
Amid the rising infection rates since the beginning of June, the greenback appreciated against most of its peers as investors sought refuge among U.S. treasuries, pushing yields to 1.1905% during the risk off run. The U.S. dollar index, a coefficient used to benchmark the performance of the greenback against a basket of six major currencies, rallied 3.50% since the beginning of June, as investors de-risked their portfolios while Covid cases continued to rise in Europe and the United Kingdom (U.K.). However, the British government reported in mid June a record high of over 54k daily cases, from which infections started to ease and market confidence began to restore. The U.K. is looking to close out July reporting 50% reduction from the peak, assisted by the end of the Euros and higher inoculation ratios reaching up to 88.3% of the adult population with at least one jab and 71.1% with two jabs. The Covid situation in continental Europe followed a similar path stabilizing at 168k daily cases easing down pressures on lockdowns and increasing the likelihood of sustaining the economic recovery.
Additionally, the Federal Open Market Committee decided to maintain its cautious tone amid COVID-19 pressures, leaving interest rates unchanged and hinting at tapering bond purchases without providing any details on timing. Remarks from Jerome Powell were very much in line with market expectations controlling the impact over financials and stimulating confidence for investors to shift their risk stance. However, policymakers continue to classify the persisting inflation levels as transitory, and stated that substantial further progress in the labour market still needs to be made before they can consider adjusting interest rates. The dovish comments from Fed officials and stabilizing covid cases have helped market participants to improve their risk positioning amid greater confidence, making the greenback retrace 1.13% from July highs in the last week of the month and looking to extend losses amid rising optimism.
10-Year U.S. Treasury Yields & U.S. Dollar index
Source: Bloomberg
Despite improving conditions and solid earning reports, the U.S. growth missed forecasts in the second quarter as the effects of supply chain bottlenecks denied the economy to take advantage of bolstering consumer spending. Gross Domestic product figures released 6.5% annualized, below 8.4% previously anticipated while previous figures were revised down 0.1% to 6.3% in Q1. The latest growth report underscores the challenges that companies are facing in trying to keep up the pace with that demand. These bottleneck effects continue to weigh on the economy’s ability to speed up the recovery rate and allowance of letting inflation sustain its high levels. Personal consumption expenditures exceeded expectations, enabling inflationary pressures to remain on the upside amid consumers ramping up their spending on services such as dining out and traveling.
As the global outlook starts improving, risk appetite from market participants will restore accordingly, with several flows seeking for riskier assets and aiming for exposures in economies with strong potential of recovery in the medium term. However, risks are still imminent as Covid woes have shown its capability in souring the market mood and triggering further lockdowns and restrictions. However, the economy has proven to be resilient with the latest spike in Coronavirus cases, which give notes of optimism ahead of the post pandemic boom.
June’s Economic Calendar
USD
On Monday (08/02): Markit Manufacturing PMI ¦ ISM Manufacturing Employment Index ¦ ISM Manufacturing PMI ¦ ISM Manufacturing Prices Paid ¦ Construction Spending
On Tuesday (08/03): Factory Orders ¦ Fed’s Bowman Speech
On Wednesday (08/04): ADP Employment Change ¦ Markit Services PMI ¦ Markit PMI Composite
On Thursday (08/05): Goods and Services Trade Balance ¦ Initial Jobless Claims ¦ Fed’s Waller speech
On Friday (08/06): Nonfarm Payrolls ¦ Average Hourly Earning ¦ Labor Force Participation Rate ¦ Unemployment Rate
On Tuesday(08/10): Nonfarm Productivity ¦ Unit Labor Costs
On Wednesday (08/11): Monthly Budget Statement
On Thursday (08/12): Consumer Price Index Core ¦ Producer Price index ex Food & Energy ¦ Consumer Price index n.s.a
On Friday (08/13): Michigan Consumer Sentiment Index
On Tuesday (08/17): Retail Sales ex Autos ¦ Retail Sales Control Group ¦ Retail Sales
On Wednesday (08/18): Building Permits ¦ Housing Starts ¦ FOMC Minutes
On Thursday (08/19): Philadelphia Fed Manufacturing Survey ¦ Initial Jobless Claims
On Monday (08/23): Chicago Fed National Activity Index ¦ Markit Manufacturing PMI (PREL) ¦ Markit Services PMI (PREL) ¦ Markit PMI Composite
On Tuesday (08/24): New Home Sales
On Thursday (08/26): Durable Goods Orders ex Transportation ¦ Core Personal Consumption Expenditures ¦ Durable Goods Orders ex Defense ¦ Personal Consumption Expenditures Prices ¦ Durable Goods Orders ¦ Initial Jobless Claims ¦ Nondefense Capital Goods Orders ex Aircraft
On Friday (08/27): Core Personal Consumption Expenditures - Price Index ¦ Personal Income ¦ Personal Spending ¦ Michigan Consumer Sentiment Index
On Monday (08/30): Gross Domestic Product (PREL) Q2 ¦ Pending Home Sales
On Tuesday (08/31): Housing Price Index ¦ Chicago Purchasing Managers’ ¦ Consumer Confidence
EUR
On Monday (08/02): Markit Manufacturing PMI
On Tuesday (08/03): Producer Price Index
On Wednesday (08/04): Markit Services PMI ¦ Markit PMI Composite ¦ Retail Sales
On Thursday (08/05): Economic Bulletin
On Monday (08/09): Sentix Investor Confidence
On Tuesday (08/10): ZEW Survey - Economic Sentiment
On Thursday (08/12): Industrial Production
On Friday (08/13): Trade Balance
On Saturday (08/14): Gross Domestic Product (PREL)
On Monday (08/16): Eurogroup meeting
On Tuesday (08/17): Ecofin Meeting ¦ Employment Change (PREL) ¦ Gross Domestic Product (PREL)
On Wednesday (08/18): Consumer Price Index
On Thursday (08.19): Current Account ¦ Economic Bulletin
On Monday (08/23): Markit Manufacturing PMI (PREL) ¦ Markit Services PMI (PREL) ¦ Markit PMI Composite (PREL) ¦ Consumer Confidence (PREL)
On Monday (08/30): Services Sentiment ¦ Consumer Confidence ¦ Industrial Confidence ¦ Business Climate ¦ Economic Sentiment Indicator
On Tuesday (08/31): Consumer Price index ¦ Consumer Price Index Core
GBP
On Monday (08/02): Markit Manufacturing PMI
On Wednesday (08/04): Markit Services PMI
On Thursday (08/05): Markit Construction PMI ¦ Bank of England Monetary Policy Report ¦ BoE MPC Vote ¦ BoE Asset Purchase Facility ¦ Monetary Policy Summary ¦ Bank of England Minutes ¦ BoE’s Governor Bailey Speech
On Friday (08/06): Halifax house Prices
On Monday (08/09): BRC Like-for-like Retail Sales
On Wednesday (08/11): NIESR GDP Estimate
On Thursday (08/12): Manufacturing Production ¦ Industrial Production ¦ Gross Domestic Product (PREL)
On Tuesday (08/17): Claimant Count Change ¦ ILO Unemployment Rate ¦Average Earnings Excluding Bonus
On Wednesday (08/18): Consumer Price Index ¦ Retail Price Index ¦ PPI Core Output ¦ Producer Price Index
On Thursday (08/19): GfK Consumer Confidence
On Friday (08/20): Retail Sales
On Monday (08/23): Markit Manufacturing PMI ¦ Markit Services PMI
JPY
On Monday (08/02): Tokyo Consumer Price Index ¦ Consumer Confidence
On Wednesday (08/04): Jibun Bank Services PMI ¦ Foreign Investment in Japan Stocks ¦ Foreign Bond Investment
On Thursday (08/05): Overall Household Spending
On Friday (08/06): Leading Economic Index
On Thursday (08/12): Producer Price Index ¦ Gross Domestic Product (PREL)
On Monday (08/16): Industrial Production ¦ Capacity Utilization ¦ Industrial Production
On Tuesday (08/17): Merchandise Trade Balance ¦ Imports ¦ Exports
On thursday (08/19): National Consumer Price Index
On Wednesday (08/25): Leading Economic Index
On Thursday (08/26): Tokyo Consumer Price Index
On Monday (08/30): Jobs / Application Ratio ¦ Unemployment Rate ¦ Retail Trade ¦ Industrial Production ¦ Larger Retail Sales
On Tuesday (08/31): Housing Starts ¦ Construction Orders ¦ Consumer Confidence Index
CAD
On Monday (08/02): August Civic Holiday
On Tuesday (08/03): Markit Manufacturing PMI
On Wednesday (08/04): Building Permits
On Thursday (08/05): Imports ¦ Exports ¦ International Merchandise Trade
On Friday (08/06): Unemployment Rate ¦ Participation Rate ¦ Average Hourly Wages ¦ Net Change in Employment ¦ Ivey Purchasing Managers
On Monday (08/09): Housing Starts
On Tuesday (08/17): Manufacturing Sales ¦ Foreign Portfolio Investment in Canadian Securities ¦ Canadian Portfolio Investment in Foreign Securities
On Wednesday (08/18): BoC Consumer Price Index ¦ Wholesale Sales Consumer Price Index
On Thursday (08/19): ADP Employment ¦ Employment Insurance Beneficiaries Change
On Friday (08/20); Retail Sales
On Monday (08/30): Current Account
On Tuesday (08/31): Raw Material Price Index ¦ Gross Domestic Product Annualized ¦ Industrial Product Price
CNY
On Monday (08/02): Caixin Manufacturing PMI
On Wednesday (08/04): Caixin Services PMI
On Saturday (08/07): Exports ¦ Imports ¦ Trade Balance
On Monday (08/09): Consumer Price Index ¦ Producer Price Index ¦
On Monday (08/10): FDI - Foreign Direct Investment
On Monday (08/16): House Price Index ¦ NBS Press Conference ¦ Industrial Production ¦ Retail Sales
On Tuesday (08/31): Non-Manufacturing PMI ¦ NBS Manufacturing PMI
MXN
On Monday (08/02): Remittance Total ¦ Central Bank Economist Survey ¦ Markit Mexico PMI ¦ IMEF Manufacturing Index
On Tuesday (08/03): Leading Indicators ¦ Consumer Confidence
On Wednesday (08/04):Vehicle Domestic Sales
On Thursday (08/05): Citibanamex Survey Economists
On Friday (08/06): Gross Fixed Investment ¦ Vehicle Exports ¦ Vehicle Production
On Monday (08/09): Consumer Price Index ¦ Bi-weekly CPI
On Tuesday (08/10): Nominal Wages
On Wednesday (08/11): Industrial Production ¦ Manufacturing Production
On Thursday (08/12): Formal Job Creation Total ¦ Overnight Rate
On Monday (08/23): Retail Sales
On Tuesday (08/24): Bi-weekly CPI
On Wednesday (08/25): Gross Domestic Product ¦ Economic Activity ¦ Current Account Balance
On Thursday (08/26): Unemployment Rate ¦ Central Bank Monetary Policy Minutes
On Friday (08/27): Trade Balance ¦ BBG Mexico Survey
On Monday (08/30): Budget Balance
On Tuesday (08/31): Net Outstanding Loans ¦ International Reserves ¦ Central Bank Inflation Report
BRL
On Monday (08/02): Markit Brazil Manufacturing PMI ¦ Trade Balance ¦ Imports ¦ Exports
On Tuesday (08/03): FIPE Consumer Price Index ¦ Industrial Production ¦ Vehicle Sales
On Wednesday (08/04): Markit Brazil PMI Composite ¦ Markit Brazil PMI Services ¦ Selic Rate
On Friday (08/06): Vehicle Sales ¦ Vehicle Production ¦ Vehicle Exports
On Monday (08/09): FGV Inflation Report ¦
On Tuesday (08/10): FGV Consumer Price Index ¦ IBGE Inflation Report IPCA
On Wednesday (08/11): Retail Sales
On Thursday (08/12): IBGE Services Sector Volume
On Friday (08/13): Economic Activity
On Monday (08/16): FGV Consumer Price Index IPCs
On Friday (08/20): Tax Collections
On Wednesday (08/25): FGV Consumer Confidence ¦ Current Account Balance ¦ Foreign Direct Investment
On Thursday (08/26): FGV Construction Costs
On Friday (08/27): PPI Manufacturing ¦ Personal Loan Default Rate ¦ Total Outstanding Loans BBG Brazil Economic Survey ¦ Federal Total Debt ¦ Central Government Budget
On Monday (08/30): FGV Inflation IGPM
On Tuesday (08/31): National Unemployment Rate ¦ Primary budget Balance ¦ Nominal Balance Rate ¦ Net Debt % GDP