Summary: Markets shrugged off the growing threat of the coronavirus pandemic spread even as more than 10 million people across the globe have tested positive. A rebound in contracts to purchase previously owned homes in the US by the most on record in May and an improvement in manufacturing activity in Texas in June gave rise to renewed optimism about a US economic recovery. World Health Organisation Director-General Tedros Ghebreyesus told reporters yesterday that “Globally, the pandemic is actually speeding up.” The Dollar Index (USD/DXY) a favoured gauge of the US currency’s value against a basket of six major foreign currencies, ended flat at 97.473. FX volatility slowed into today’s June 30 month, quarter, and half-year end. The Euro climbed to 1.1240 from yesterday’s 1.1218, up 0.32%. Sterling slipped to 1.2295 from 1.2337, pressurised by Brexit tensions where a resumption of talks between the EU and UK saw no real progress. Against the Yen, the Dollar rallied 0.44% to 107.60 (107.22). The Greenback advanced 0.34% against the Swiss Franc to 0.9512 from 0.9482. Risk and resource currencies finished little-changed. The Australian Dollar was trading at 0.6867 in late New York (0.6864 yesterday) while the Kiwi (New Zealand Dollar) settled at 0.6420 (0.6422 Monday). Wall Street stocks rebounded, erasing losses from yesterday. The DOW finished up 2.14% to 25,635 (25,040) while the S&P 500 added 1.29% to 3,060 (3,015). Global bond yields were static, US 10-year rate was at 0.62% (0.64%). Data released yesterday saw Japanese May Retail Sales fall to -12.3%, missing forecasts at -11.6%.
Germany’s Preliminary CPI climbed to 0.6%, beating expectations of 0.3%. Spanish Flash CPI was at -0.3%, beating forecasts at -0.9%. The UK Mortgage Approvals dipped to 9,000 (against forecasts of 25,000). Canada’s Building Permits in May rose to 20.2%, beating expectations of 10.3%. US Pending Home Sales in May surged 44.3%, beating forecasts of 18.9%. It was the largest gain since the series began in 2,000. According to a Reuters report, contracts remained below February levels, before businesses were shuttered in a bid to slow the coronavirus. US Dallas Fed Manufacturing Index climbed to 13.6, overwhelming forecasts at -28.0. On the Lookout: Market attention remains fixed on developments of Covid-19 global cases. Today sees the release of several first-tier economic reports from around the globe. Several central bank heads are scheduled to speak today. This morning, RBA Deputy Governor Guy DeBelle speaks on the RBA’s policy actions and balance sheet at the Economic Society of Australia’s webinar where questions are expected (12.30 pm Sydney). Early tomorrow morning (2.30 am Sydney, July 1) Federal Reserve Chairman Jerome Powell together with US Treasury Secretary Steven Mnuchin testify before the US House Financial Services Committee in Washington DC. Japan kicks off today’s reports with its Unemployment Rate, Jobs/Applicants Ratio for May, Preliminary Industrial Production (May) and Housing Starts, released later on. New Zealand follows next with its ANZ Business Confidence Index. China reports its NBS June Manufacturing and Non-Manufacturing PMI. Australia’s Private Sector Credit (May) follows. The UK reports on its Current Account, Final Q1 GDP and Revised Business Sentiment. Switzerland’s KOF Economic Barometer and Retail Sales follow. European reports see French Consumer Spending and Preliminary CPI data as well as the Eurozone Flash Estimate Headline and Core CPI data. Canada reports its GDP (May). The US rounds up today’s reports with its Chicago PMI, S&P/Case Shiller Composite 20-year House Price Index, and Conference Board Consumer Confidence (June). Trading Perspective: FX volatility eased yesterday with the currencies trading in relatively narrow ranges. Today we could see volatility pick up on any portfolio rebalancing, which would be different for various currencies. Despite the rally in risk assets due to the upbeat US data, resource currencies were not impressed and finished little changed. The warnings from the World Health Organisation on the second wave of rising new Covid-19 cases as well as the halt in re-opening plans in Texas, the 30-day closure of bars, clubs and gyms in Arizona will keep a bid on the US Dollar. The risk-on tone will be challenged. We should see some good trading opportunities as we close the month, quarter and half of the year.