Post date: 22/06/2020 10:57

The rally in risk assets resumed last week, albeit more slowly and amid choppy two-way trading. Oil prices however broke away from the pack, and crude is up 10% for the week. Not surprisingly, the week’s top performing currencies were the Russian ruble and the Colombian peso, whose economies are highly dependent on energy exports. On the weak side, Sterling underperformed all other G10 currencies, as fears of a hard Brexit continue to hound the British currency.

This week we will get the critical PMI indices of business activity for June in the Eurozone, the US and the UK. These are the most reliable advance indicators of the state of the economy. In the past few weeks, economic data has tended to surprise to the upside. We expect that trend to continue, and it is likely that some indices will break back up above the key 50 level that indicates a return to economic expansion.


Economic news last week out of the UK was generally better than expected. Unemployment rose less than feared, and retail sales ex-auto fuel rose by 10% vs expectations for a 5% gain. The Bank of England left rates on hold and increased the QE target by £100 billion, with just one dissenting vote. However, the Pound failed to rally in spite of these supportive circumstances, as it seems that traders are becoming a bit nervous about the lack of progress in the Brexit negotiations with the European Union.


Not a lot of economic news out of the Eurozone last week. On the positive side, COVID cases continue to trend down in the continent as a whole, a marked contrast to the situation in the US. Also, Eurozone banks took up more TLTRO3 cheap loans from the ECB than was expected, another sign pointing in the right direction, as it indicates banks are more optimistic regarding the demand for credit. We think there is potential for another upside surprise in Eurozone June PMI indices out this week. If so, and the gap in new COVID cases with the US persists, we may well see the Euro rally start the next leg higher.


US economic data turned more mixed last week. Retail sales for May were much better than expected, rebounding twice as fast as expected from April’s dismal reading. However, the more timely weekly jobless claims were slightly disappointing. Another 1.5mm workers filed for unemployment benefits, and the number collecting benefits stayed above 20 million. Perhaps more ominous is the upward trend in new COVID cases in many states, such as California, Texas and Florida, where the contagion curve is on the upswing and the number of new cases regularly hits records. We expect that the gap between these figures and the more encouraging ones out of the Eurozone should be supportive of the common currency in the coming weeks.