Markets Down on US Performance

What's New

. Asian markets were down today, as terrible Q2 economic performance in the US, coupled with rising Covid-19 cases, were more enough to hit investor sentiment, despite strong US tech earnings and signs of manufacturing recovery in China and Japan.

. MSCI Asia-Pacific (ex. Japan) was down by 0.22%, led by the month-end profit-taking behaviour of the traders on the ASX, while Japan's Nikkei fell by 1.87% as the Yen keeps on rising. S&P Eminis were last up 0.16%.

. Yesterday, US GDP fell by 32.9% at an annualized rate (or simply around 8% on y/y basis), the deepest decline on record, while continuing jobless claims rose, adding to signs that the momentum of economic recovery has slowed. At the same time, Donald Trump raised the possibility of delaying the November election due to the coronavirus.

. The US Dollar followed on these news, and is set for its worst month in a decade as traders believe that the Fed will maintain its loose monetary policy for a long time.

. The US bond market reflected those worries, with the 10-year bond standing at 0.525%.

. On the plus side, big tech companies (Apple, Amazon, Facebook, Alphabet) reported earnings which beat Wall Street expectations, with analysts suggesting that this could lead to an improvement in risk sentiment. The tech sector arose victorious from the Covid-19 lockdowns as the millions of Americans who stayed indoors in order to contain the pandemic shifted to online purchases, pushing the shares of the largest US technology companies to record highs.

. In Asia, economic data appear better than expected. China's manufacturing PMI data showed that factory activity continued to be above 50 in July, marking the fifth straight month of growth.

. Similarly, unemployment dropped and industrial production grew in Japan, suggesting that the country's economic situation is improving. Korea has also reported better than expected data, with industrial production appearing to have reached a trough.

. In France, output dropped by less than expected, at a 13.8%q/q rate, compared to expectations of a 15.3% contraction.

. As analysts note, there are some signs of an improvement in global trade flows as economies reopen, however, investors focus on the potential for higher interest rates. This, pushed the greenback lower to 104.31 against the Yen, as the Euro moved to $1.1889.

. In the commodity markets, Brent was mildly up to $43.17 per barrel, with WTI standing at $40.04 per barrel. Gold continued its upwards movement, standing at $1968 per ounce.

Up and Coming

. German retail sales are due in a few minutes, with expectations pointing to a 3%y/y growth, despite an expected m/m decline.

. In Spain and Italy, GDP is expected to have declined by 19.7% and 18.7% y/y respectively. Euro Area GDP is also seen to have dropped by 13.9%y/y.

. In the US, Core PCE is forecast to have increased by 0.2%m/m, with personal income is expected to have dropped (again) by 0.5%m/m in June. The Chicago PMI is seen to have increased but still have remained way below 50.

. In Canada, May's GDP is forecast to have increased by 3.5% versus an 11.6% decline in April.

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