Post date: 05/07/2021 13:57

Risk assets traded listlessly all week, though US equities managed to hit yet another all-time high. Rates dropped, and in this somewhat unusual environment the US dollar performed quite well, ending the week higher against almost all of its major peers. A pullback after the publication of a strong US payrolls report on Friday was not enough to take the shine off the greenback. Commodities breaking to another five-year high, having recouped completely from their recent shallow pullback, received remarkably little notice; this bodes well for emerging market currencies as a whole. This week should be relatively quiet in terms of major data releases in the large economic areas. The Fourth of July holiday will shorten and thin trading worldwide, so we expect no major surprises or market volatility. Trader attention should drift back to second-tier economic releases like national industrial production in the Eurozone countries and perhaps vaccination progress in emerging markets that have been lagging thus far.


Not much of note last week out of the UK, save for yet another double digit annual increase in house prices. The combination of the COVID-driven demand for housing away from urban centres and extremely stimulative monetary policy settings is having an impact here. Monthly GDP growth for May is out on Friday, the latest read on the impact of the reopening on the services sector. We think that the concerns over the delta variant of COVID are overblown, as it is having a very limited impact on deaths and the generally more vulnerable but now vaccinated elderly population. Therefore we see some scope for sterling to recover the ground it lost over the past few weeks.


Economic data out of the Eurozone continues to come in on the strong side, but June inflation dipped slightly from its May rebound, to 1.9% headline and 0.9% core. The haphazard lifting of the various country lockdowns means pent up demand there has not yet been released to the extent that it has in the US. To the extent that recent weakness has to do with delta variant concerns, we think that the euro is likely to recover its recent losses in the next few weeks. Meanwhile, regular macroeconomic data is very thin this week.


The US payrolls report for June could be best described as mixed-to-strong. The establishment survey showed 850k net jobs were created, more than the market expected. However, the parallel household survey was less bullish, showing an uptick in unemployment and no sign of easing in labour supply bottlenecks. The dollar weakened modestly in the aftermath of the report, but it is difficult to read the market’s mind in this case. The main event this week will be the release of minutes of the Federal Reserve June meeting, which should add much needed clarity on the extent of the hawkish turn the Fed seemed to suggest there.