Market Quick Take - June 23, 2020
Chief Economist & CIO
Summary: The US equity market rallied strongly yesterday, perhaps in part as US President Trump favors a new stimulus check as part of a new large spending bill. Markets were roiled briefly overnight by comments from trade advisor Peter Navarro on the status of the US-China trade deal, but the move was erased on the claim that the comments were taken out of context. Elsewhere, gold remains perched near key breakout levels as the USD wilted.
What is our trading focus?
- US500.I (S&P 500 Index) and USNAS100.I (NASDAQ 100 Index) – the US equity market rushed higher and closed at a new high daily close in the case of the Nasdaq 100 index, while the S&P 500 Index is still within its range despite yesterday’s strong session. Momentum is somewhat bearishly divergent in the case of the Nasdaq 100 (new high close in price while momentum indicators are not at a new high), but a quick failure in the price action is necessary for bearish confirmation there, though the lack of breadth in notable.
- XAUUSD (Spot Gold) - remains perched just below the eight-year high at $1765/oz reached last month. The market has seen a fresh bid this past week on renewed virus angst with Boston Fed’s Rosengren warning that unsafe re-openings threaten the recovery. It raises the prospect of prompting central banks and governments to keep boosting their stimulus measures. Real yields, a key driver for gold, dropped to –0.66%, the lowest since March. Silver’s outperformance seen yesterday has paused after it hit resistance at $18/oz. The latest COT report 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.
- USDZAR – with the emergency South African budget announcement up tomorrow, we look for the ZAR to prove reactive after a period of passively following the improvement in EM credit spreads over the last two months. The debt dynamics for South Africa are unsustainable in the longer term and will require difficult austerity and reforms to avoid defaults or a potential IMF bailout, as Finance Minister Mboweni has warned.
- GBPUSD – the USD was weak yesterday and sterling rebounded broadly, taking GBPUSD all the way back to the pivotal 1.2500 level – arguably a pivotal psychological and technical level that dictates the direction for GBPUSD here if crossed, just as the pair closed right at the downside “swing” area near 1.2355 on Friday.
- NZD crosses – for example, NZDUSD and AUDNZD, as the RBNZ meets tonight. The prior meeting in mid-May saw the RBNZ seeming to lay the groundwork for negative rates, but with the enormous rebound in markets and optimism and a successful approach to fighting the coronavirus outbreak in New Zealand, is the RBNZ set for a more wait-and-see-approach. AUDNZD is a good benchmark for NZD relative strength.
What is going on?
- US President Trump claimed that US-China trade deal remains “fully intact” after a brief meltdown in markets overnight triggered by comments in an exchange on a TV news programme with US trade adviser Peter Navarro, who said the trade deal was “over”. He later claimed the comments were taken out of context.
- Apple announced it will transition away from Intel chips and plans to design its own, with the first products ready as early as later this year. Apple closed at a new record high of almost 359 per share yesterday, giving it a market cap of more than $1.55 trillion.
- Australia’s preliminary Jun. Services PMI rebounded into positive territory at 53.2 after 26.9 in May as the country has begun opening up, with the flash Manufacturing PMI just missing expansion at a reading of 49.8. Japan’s flash PMI surveys were more downbeat, registering a 37.8 for manufacturing and 42.3 for services.
What we are watching next?
- More Flash Jun. PMI’s coming up – with the France, Germany, Euro Zone and UK preliminary manufacturing and services surveys up this morning and the Markit surveys for the US up later.
- RBNZ meeting – see comments above for NZD crosses.
- 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)
- 0715 – France flash Jun. Manufacturing and Services PMI
- 0730 – Germany flash Jun. Manufacturing and Services PMI
- 0800 – Euro Zone flash Jun. Manufacturing and Services PMI
- 0830 – UK flash Jun. Manufacturing and Services PMI
- 0930 – South Africa Q1 Unemployment Rate
- 1200 – Hungary Central Bank Decision
- 1345 – US flash Jun. Markit Manufacturing and Services PMI
- 1400 – US May New Home Sales
- 1400 – US Jun. Richmond Fed Survey
- 0200 – New Zealand Official Cash Rate announcement
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