Market Quick Take - June 22, 2020

Macro 3 minutes to read
Steen Jakobsen

Chief Economist & CIO

Summary:  Friday saw equities ending faltering badly from intraday highs and closing the session on a low note amidst options and futures expiries. The Monday Asian session saw risk appetite rebounding and the euro relatively stable despite an EU Council meeting showing resistance from some EU countries to the nature of funding for the planned recovery package. Gold is pushing towards the highest level since 2012 after building on Friday's strong close.

What is our trading focus?

  • US500.I (S&P 500 Index) and USNAS100.I (NASDAQ 100 Index) – the major equity markets saw a volatile session on Friday, with a steep intraday rally wiped out and then some and the indices closing on the day’s lows and below 10,000 in the case of the Nasdaq and below the 21-day moving average in the case of the S&P500 (currently near 3,078) Downside focus for the broader S&P500 index is the 200-day moving average just above the psychologically important 3,000 level.

  • OILUSJUL20 (WTI Crude Oil) and OILUKAUG20 (Brent Crude oil) - trade softer this Monday but with renewed virus angst having a relatively small impact. A sign that the market, at least for now, has concluded that rising COVID-19 cases or a second wave will not be met by the draconian lockdown measures seen back in March. Thereby supporting a continued recovery in demand, albeit at a slower than expected pace. While we maintain the view that oil is in consolidation mode the two closing gaps to $41.05/b on WTI and $45.18/b on Brent may still attract attention from traders. The gaps opened following Saudi Arabia’s ill-timed price war declaration back on March 8 may.

  • LHA:xetr (Lufthansa) - shares are indicated down 10% in pre-mkt as CEO says that it is not certain that the bailout deal will go through extraordinary general meeting as it requires 2/3 majority. The biggest obstacle is that its biggest investor Heinz-Hermann Thiele is threatening to block the rescue plan which will drastically dilute his stake in the airliner. This week could be fatal for Lufthansa. The airliner said this morning that it would have negotiations with the government before declaring insolvency if needed.

  • XAUUSD (Spot Gold) - is pushing towards the highest level since 2012 after building on Friday’s strong close. Boosted by concerns of a second wave of coronavirus infections and market unease about the latest developments in Hong Kong. These together with unprecedented stimulus to support the economy are driving future inflation expectations up and 10-year real yields down to a five-week low this morning at –0.63%. The latest COT report – out on - showed hedge funds turning net buyers for the first time in four weeks. Having cut net longs by 50% since February a breakout is likely to force them back into the market. A development that could give gold the boost needed to reach our $1800/oz target.  

  • EURUSD – the euro ended Friday on a weak note as the EU Council meeting wrapped up with signs of resistance from the “frugal four” as discussed below. The sell-off took the price to the first major Fibonacci retracement level around 1.1160, an important support for the status of the prior rally off the sub-1.0800 lows of April. The technical status for EURUSD thus looks pivotal this week.

  • GBPUSD – sterling was weak last week and broke down versus the USD and the EUR as Brexit concerns weigh and on the UK’s external deficits in a world where it looks rather lonely without a generous deal from the EU on the eventual trade terms once the Brexit transition period ends. Formal Brexit talks set to resume next week, but for now, the technical focus is on whether 1.2350 - the last major Fibonacci support level for GBPUSD, supports or we see a full breakdown, possibly to the 1.2000 area.

What is going on?

  • Trump’s attempt to kickstart his 2020 re-election campaign with a rally in Tulsa stumbled badly as the crowd at the arena was only some one-third of its capacity and some organizers of the event had tested positive for the coronavirus. Trump blamed poor attendance on the news media.

  • The EU Council meeting showed “frugal four” EU nations resisting recovery package budget, saying that countries should only receive help in the form of loans and not grants. The Euro closed at a new local low versus the USD and JPY on Friday but firmed slightly in early Monday trading. The frugal four nations are Sweden, Denmark, Netherlands and Austria.

  • China’s central bank left the policy rate unchanged at the meeting over the weekend as expected, but mainland Chinese equity markets maintained a recent strong rallying stance and traded to new highs in Monday’s session

What we are watching next?

  • Flash Jun. PMI this week – the Markit and other initial manufacturing and services surveys for all major economies worldwide will be out this week and offer a glimpse at the strength of the rebound relative to May’s still weak numbers.

  • South Africa supplementary budget announcement - To be announced Wednesday, with Finance Minister Mboweni leaning against support for SOE’s and pointing to the risk that South Africa eventually needs to ask the IMF for help in coming years if its deficit trajectory is not improved.

Economic Calendar Highlights (times GMT)

  • 1230 – US May Chicago Fed National Activity Index
  • 1400 – Euro Zone Jun. Consumer Confidence
  • 1400 – US May Existing Home Sales
  • 1500 – Canada Bank of Canada’s new Governor Macklem to give first speech.

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