Thursday, July 30, 2020

Capital Markets: "Greenback's Bounce is Likely Short-Lived"

From Marc to Market:
Overview: A wave of profit-taking is seen through most of the capital markets today, with the exception of the bond market, where yields continue to trend lower. The US 10-year is now yielding 55 bp, a new low since early March, and the five-year yield set a new record low near 23 bp. European yields are 2-4 bp lower. After pushing above key levels around the Fed meeting yesterday, the euro and sterling have fallen to profit-taking and spurring a broader dollar bounce. The Scandis and dollar-bloc currencies are off 0.5%-1.0%, leading the move today, while the European complex and yen are off 0.15%-0.5%. The liquid and accessible emerging market currencies, like the South African rand, Russian rouble, Mexican peso, are off 1.0%-1.5% and leading the way lower. Gold, too, is lower amid modest profit-taking, but so far, yesterday's low near $1941 is intact. September WTI is 1% lower and holding a little above this week's low near $40.50. Outside of Taiwan, Korea, and Australia, equities in the Asia Pacific region and Europe are lower. It is the first back-to-back decline in the MSCI Asia Pacific Index this month, while the Dow Jones Stoxx 600 lower for the third time this week and the fourth in the past five. US shares are weaker, and the early call is for a nearly 1% drop in the S&P 500. Note that Alphabet, Apple, Facebook, and Amazon, whose officials testified in the House of Representatives yesterday, report earnings later today.

Asia Pacific
Japan reported a surge in retail sales in June, the first full month after the state of emergency ended.
The 13% jump in retail sales was well above the median forecast in the Bloomberg survey for an 8% rise. The May series was revised to show a 1.9% gain instead of 2.1%. Nevertheless, the year-over-year rate stands at -1.2%. In May, it was 12.3% lower. Tomorrow Japan reports June employment data, and the unemployment rate is expected to creep up to 3.1% from 2.9%. June industrial production is also on tap, and the first rise since January is expected (~1% after falling nearly 9% in May). That would still leave industrial output off by almost a fifth from a year ago.

Australia's economic data was worse than expected. June building approvals were off 4.9% compared with expectations for a less than a 3% decline. February is the only month in the first half that saw an increase. Separately, Australia's Q2 terms of trade deteriorated as the export price index fell 2.4%, which was more than expected, and import prices fell by 1.9% compared with an expected decline of 3%. Separately, Bloomberg reported that the government's projection of $55 a ton for iron ore, its largest export, was around half the prevailing price, which gives upside potential to tax revenue and nominal GDP is prices stay near current levels.....
Germany reported that the world's fourth-largest economy contracted by 10.1% in Q2, a full percentage point more than economists projected.
The details will not be published for a couple of weeks. Its temporary cut in the value-added tax this month appears to be weighing on the state's CPI reports. The national harmonized figure, due out later today, is expected to show the year-over-year rate may fall from 0.8% to 0.3%. The eurozone's Q2 GDP and July CPI estimate will be published tomorrow....