A mixed week across markets saw the UST curve flatten, the yield on the 10-year UST fell 8bps to 0.63%. Meanwhile, the S&P Index rallied to all-time highs last week, closing the week up 0.72%, and the NASDAQ also hit record highs driven by Apple, Amazon and Tesla’s relentless gains. The renminbi appreciated to a seven-month high against the dollar, we expect the currency to remain headline driven as US-China tensions remain. Market sentiment appears to have started the week on a positive note, as coronavirus treatment progresses, both through the US’ (FDA emergency authorised) plasma treatment and the vaccine developments by Oxford University and AstraZeneca. However, with the US Gulf storms Laura and Marco approaching, coupled with US stimulus negotiations and rollercoaster US-China tensions hanging in the balance, sentiment may wane through the week.
Last week US initial jobless claims surprised to the downside last week, surging to 1.1m, from 135k a week earlier. Although continuing claims fell, the labour sector appears shaky. The FOMC minutes from the July committee meeting warned that the pandemic would “weigh heavily on economic activity, employment and inflation in the near-term”, with “considerable risks to the economic outlook over the medium term”. The central bank also noted that it will refrain from giving any forward guidance on tightening rates at this juncture and will instead look to sharpen its guidance “at some point”. The minutes also noted that “additional accommodation could be required”; which suggests that ultra-loose monetary policy is here to stay. We may get further hints on monetary policy and economic forward guidance from what would have been the Jackson Hole annual monetary policy symposium, now to be held virtually (for the first time in ~40 years), on August 27-28. The ECB minutes were not dissimilar from the FOMC’s, highlighting outlook concerns, forecasts of which are expected to be released at the next meeting in September and will “undoubtedly reflect the reality that wasn’t as clear in mid-July” the report said. Staying in Europe, as the number of Covid cases continued to rise, Germany’s Merkel called on EU leaders to refrain from re-imposing strict lockdowns “at any cost” and remain coordinated in their responses.
Last week Trump demanded the UN to reinstate sanctions on Iran over the nuclear deal, with Germany, France and the UK claiming that the US does not have any legal rights to do so. Any developments on this matter will be monitored closely this week particularly as 13/15 UN members are against the move, citing an “unpleasant” US. Another focus will be any further progression on the US’ stimulus plans, following the Post Office Bill agreed over the weekend. House Speaker Nancy Pelosi last week said: “We’re willing to cut our bill in half to meet the needs right now,” adding, “We’ll take it up again in January.” The US Republican National Convention kicks-off today, Trump is due to speak on the 27th. The UK-EU talks resume today and continue throughout the week; progress is not looking hopeful following the EU Chief negotiator Barnier’s comments that a Brexit deal “seems unlikely”. Tuesday will see Germany’s GDP and IFO readings, and the start of the US Treasury’s USD 148bn 2-, 5-, and 7-year bumper bond auction. On Wednesday EU defence ministers will informally meet in Berlin to discuss foreign and security developments, and the ECB Executive Board member Schnabel will discuss “Monetary Policy, Low Interest Rates and Risk Taking.” US durable goods for July on Wednesday and US GDP, pending home sales and China industrial profits prints on Thursday will be of interest. Thursday will also see the start of the two-day Economic Policy Symposium, where members will discuss “Navigating the Decade Ahead: Implications for Monetary Policy”. The Fed’s Powell speaks on Thursday while the BoE Governor Bailey will speak at the online event on Friday.