A good deal has happened since last weekend’s G20 gathering in Osaka. First of, Trump surprised many pundits by not only reaching an agreement with President Xi, to restart talks with China on Trade, but then also by successfully managing to step into the ‘Demilitarised Zone’ and shake hands with Kim Jong-un again.
Well, either of those two events on their own might have been enough to the give the equity markets a lift on the opening yesterday, but put both together and it was hardly surprising that global equity markets got a real boost with which to start the week.
What this news also did was to help the dollar rebound across the board, but most notably versus the EUR and the JPY. The EURUSD fell sharply back below both its 200 daily and weekly moving averages yesterday; averages that it had only just broken out above last Friday. The USDJPY regained the 108 handle as well, something which didn’t look very likely as last week came to a close either.
In terms of risk it was certainly the JPY that was the driver here and that’s also easier to explain when one looks at gold, to see how that reacted to all the geopolitically positive news too. Naturally, and for some while now, as I have commented on many times before, where gold goes, usually the JPY follows and vice versa of course.
As far as the equity markets and risk are concerned, its also worth noting that with WTI back much closer to $60 a barrel at the start of this week, that is also a positive for those markets in general, and in particular for the S+P 500 as a more closely correlated companion.
However, one slight note of caution to mention here which might explain why the equity markets haven’t exactly charged away. That could be to do with the latest manufacturing PMI data from China, released early yesterday. That came out at just 49.4, matching the previous reading for May, and as yet showing no real indication of any kind of rebound.
However, irrespective of that, and given this most recent fresh injection of geopolitical positivity from Trump and the G20, perhaps it was surprising that the RBA decided to lower rates again earlier today.
However, such an outcome was nevertheless expected this month or next anyway, and besides this reduction surely owes more to domestic considerations,than it does to anything concerning China and trade?
Consequently, the AUDUSD gave up much its most recent gains, falling back through 0.7000 and towards 0.6950 after the RBA lowered its benchmark rate to a record low of 1% earlier this morning. More to come from them this summer perhaps?
Well, I think the key to answering that surely lies in how the property market down under fares over the next few months because that’s the central bank’s main focus for now. If the AUD gets taken lower in the process, then I am sure that’s just gravy as far as the RBA are concerned, so long as the AUD continues to stay off Trump’s currency hot list of course!
Data release wise elsewhere this week, seeing as it’s the first week of the new month, which usually means its all about the latest US payroll and wage inflation numbers. We will see what the June data has in store this Friday. Further clues on that might also come with the latest ADP and Challenger numbers tomorrow, not forgetting that Uncle Sam is celebrating his independence on 4th of course. Also worth noting are the latest Swiss FX reserves (Out at 8am on 5th) to see if there’s any marked change there.
I suppose it’s frustrating for the US president to see the dollar battle its way back this week. He did seem to be getting some downside traction following his repeated (for the umpteenth time) attack on his own currency only a few days ago. However, which matters more to him I wonder? The stock markets or the dollar? It looks increasingly likely that, unless the current correlations and dynamics change, then Trump simply cannot have his way with both at the same time. It probably won’t stop him trying though!
Important Economic Releases Due the Rest of This Week
03/07- 2.45am China June Composite + Services PMI Estimates
03/07- 9.30am UK June Services+ Composite PMI Estimates
03/07- 12.30pm US Challenger June Job Cuts
03/07- 1.15pm US ADP June Private Payrolls
03/07- 3.00pm US May Factory Goods Orders and Durable Goods orders (final reading)
03/07- 3.00pm US ISM June Non-Manufacturing/Services Index
04/07- 10.00am Eurozone May Retail Sales
05/07- 8.00am Swiss June Foreign Currency Reserves (currently $760 billion)
05/07- 1.30pm US June Monthly payrolls, Wage price inflation and Unemployment Report
05/07- 1.30pm Canadian June Monthly payrolls andUnemployment Report