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Collinson FX: June 30, 2020 - US markets rebound from Friday's losses

by Collinson FX 30 Jun 05:21 PDT 30 June 2020
Club Marine Winter Series - Waitemata Harbour - June 27, 2020 © Richard Gladwell / Sail-World.com

Collinson FX: June 30, 2020 - US markets rebound from Friday's losses

US stock markets rebounded strongly to open the week, after suffering big losses, last Friday. The surge in coronavirus cases across the US, triggered a big sell-off, in equity markets. The surge in infection levels continued, but much of these are due to ramped up testing, while the mortality rate remains low. The wider population is being tested and diagnosed, but the infection levels in the younger demographics are not often fatal. Markets shrugged off the numbers and rallied strongly. The Dollar attracted renewed attention, as the EUR fell back to 1.1230, while the GBP dropped below 1.2300.

The economic data is coming off record lows, reflecting the various re-opening of economies, across the world. NZ and Australian infection levels re-emerged, contradicted the narrative of 'defeating the virus', which have been pushed by Governments. The virus has sparked local doubts about the strategy used to combat the virus, especially after suffering severe lockdowns. The AUD trades around 0.6850, while the NZD attempt to hold 0.6400, in the face of a rising reserve.

The virus remains a threat, across the globe, but trade with China may be the big threat in the coming trading week?

Collinson FX: June 29, 2020 - Fear spread over the spike in coronavirus

Markets closed the week much lower on Friday's close, as fear spread over the spike in coronavirus, across the Southern States of the USA. The rise in infection rates and hospitalisation levels, triggered action from the Texas Governor. Governor Greg Abbott paused the re-opening process, closing bars and advocating mask-wearing. The fear of a 'second wave' and the impact on the US economy, has killed risk appetite. US equities markets plunged to close out the week and remained nervous. The US Dollar remained surprisingly resilient, with the EUR holding 1.1220, while the GBP dropped to 1.2340.

The Federal Reserve release their Bank Stress tests and there were warning signals. They offered the potential scenario, where US Bank Capital levels may approach minimums requirement levels, thus forcing cuts in dividends and stock re-purchases. This triggered a big sell-off in Bank stocks, more than wiping out the big gains in the previous session, sparked by the Fed eliminating GFC regulations. This may have been a pre-emptive action?

The progression of the pandemic, over the weekend, will determine the market mood come Monday. The coming week has key employment date from the USA and is the end of the second quarter. Trade remains a huge macro issue and will impact the trade exposed commodity currencies. The AUD closed the week trading around 0.6850, while the NZD holds 0.6400, with a big week ahead.

Collinson FX: June 26, 2020 - NZ Export returns improved, but imports declined

Coronavirus cases continue to rise globally, with record numbers in the Southern US Sun-Belt States. The spike upwards can be attributed to a massive expansion in testing, although the hospitalisation numbers reflect a more concerning trend, triggering remedial actions in hotspots. This has dampened enthusiasm for the rambunctious 'V-Shaped' recovery in global equity markets. This has also reversed trends in the US Dollar, as risk appetite diminishes, the Dollar becomes more attractive. The EUR fell back to 1.1200, while the GBP now tests 1.2400, on the downside.

US markets were boosted by actions taken by the FDIC, to remove restrictions on banks, imposed following the GFC. The rally in Bank shares offset fears over the rising spread of the coronavirus. Trade concerns remain, as the EU rejects US threats over European aircraft subsidies, while China continues to be at risk of further US sanctions. The trade threat is the biggest danger to the trade exposed commodity currencies and the rise in the reserve, reduced enthusiasm for the trans-Tasman currencies. The AUD slipped back to 0.6850, while the NZD tests 0.6400, despite a narrowing trade deficit. NZ Export returns improved, but imports declined, along with domestic demand. The improving headline number is economically undermined by the sharp fall in demand for imports, confirming weakness in consumer demand.

Trade remains a big threat to markets, while the immediate threat of a virus spike, drives daily investment emotion.

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