Macro: Sandcastle economics
Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.
Chief Investment Officer
Summary: Markets ended last week on another high note, and the Asian session followed suit to start the week with strong gains. The JPY is the weakest major currency overnight as US long yields snapped back higher on Friday ahead of record US Treasury auctions this week of longer term US treasuries. The US dollar trades near pivotal levels to start the week.
What is our trading focus?
What is going on?
New Zealand Apr. Retail Card Spending dropped -46.8% month-on-month but the country has shifted from extreme lockdown to preparing a rapid opening up as the country has claimed success in halting the spread of COVID-19.
COVID-19: South Korea and China are both dealing with localized outbreaks of COVID-19, with South Korea facing an outbreak linked to night clubs and China enforcing a lockdown in a city near the border with North Korea due to a rise in infections. This shows the bumpy nature of reopening economies and South Korean equities also declined in today’s session.
What we are watching next?
Monthly Oil Market reports from the U.S. Energy Information Administration on Tuesday, OPEC on Wednesday and the International Energy Agency on Thursday will be watched closely following a month of carnage in the oil market. With the price beginning to recover the market will be watching closely any changes in the outlook for demand and supply.
US long treasury yields the next few months will see a torrent of US treasury issuance, some 3 trillion in total, as the US must finance its massive fiscal response to the COVID-19 crisis. Much of this will be at the short end of the curve and the Fed will end up purchasing a great deal of this debt in the secondary market anyway, but auction results and long US yields bear watching this week as a sign of the markets confidence in the US treasury market and at least the trust in whether the Fed will move to keep yields near current lows all along the curve. The auctions kick off today with $42 billion of 3-year debt on the block, Tuesday sees a $32B auction of 10-year T-notes, and Wednesday $22B of 30-year T-bonds.
Turkey and USDTRY – the Turkish lira was under major pressure last week after clearly giving up on defending the USDTRY level of 7.00. The fact that in the background, many EM currencies are doing relatively well and risk sentiment is broadly strong has made the TRY’s struggles even more notable. While the USDTRY level has been pushed back lower since last Thursday’s highs, possibly after the Turkish banking regulator banned three major western banks from trading in the country’s currency, the currency bears watching as a possible candidate for triggering more widespread contagion across EM and some of the TRY bounceback is down to the rather negative reason that liquidity is drying up – making even transacting in the currency in any size difficult, with forward prices already marked aggressively lower.
US-China relationship – things have gone very quiet here and some of the general rally in risk sentiment late last week may have been due to news that the US and China are in active dialogue over trade issues, but concerns persist as China could feature prominently in the US presidential election, and there is still the open accusation from the Trump administration on China’s handling of the early phase of the Covid19 outbreak.
World Agricultural Supply and Demand Estimates - The grains market is waiting for the monthly WASDE report from the US Department of Agriculture on Tuesday. Some focus on adjustments for corn demand and exports following the recent slump in demand from ethanol producers (one-third of US demand). Estimates on Chinese demand for US farm goods will also be watched closely as the trade-deal receives new focus from the White House.
Economic Calendar Highlights (times GMT)
Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: