Archives of “July 2020” month

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Germany July ZEW survey current situation -80.9 vs -65.0 expected

  
Analysis, Economy

Latest data released by ZEW – 14 July 2020

  • Prior -83.1
  • Expectations 59.6 vs 60.0 expected
  • Prior 63.4
What stands out in this report here is that any rebound in economic sentiment remains tepid at best and while expectations are still elevated, they have dropped off slightly – a hint that optimism about the future is becoming more measured.
On the latter, it would be a focal point moving forward as that will more or less give an idea about the pace of the recovery and this early stutter isn’t all too encouraging.

Eurozone May industrial production +12.4% vs +15.0% m/m expected

  
  Analysis
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Latest data released by Eurostat – 14 July 2020

  • Prior -17.1%; revised to -18.2%
  • Industrial production WDA -20.9% vs -18.9% y/y expected
  • Prior -28.0%; revised to -28.7%

Factory output rebounded in May but not as robust as anticipated, with the annual reading highlighting the plight faced by the euro area economy despite the gradual easing of lockdown measures. June should also reflect a rebound but new normal conditions and the pace of the recovery will likely only be seen in July to August or later in Q3.

UK 2-year bond yields briefly fall below that of Japan’s for the first time ever

  
  Analysis
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The Japanification of the gilt market continues

UK Japan

Japan is pretty much the benchmark for low-to-no yields in the global bond market and when another country reaches that point, it sort of rings an alarm bell to investors that there isn’t much attractiveness/value in said yields anymore.
UK long-term yields fell below their Japanese counterparts at the end of last month but now we’re seeing the front-end of the curve follow suit as well.
The rally in gilts could either be suggestive that investors are fine with being more risk averse or that those buying are pretty much stuck due to regulatory constraints.
But whatever the case is, don’t expect value investors to be searching for scrumptious returns in the UK any time soon. In turn, that may be another reason to add to the list of headwinds for the pound and the UK economy in general.

Risk ahead for the EURO this week

  
Analysis, Forex
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ECB policy review and European summit

German bunds were trading at -0.46% yesterday on the 10 year chart which is 10bps lower than a Bloomberg modelled curve mentioned on the Bloomberg Live Blog yesterday. This is most likely due to positioning ahead of the European Council’s summit.

On Friday and Saturday of this week EU policy makers will meet to discuss the proposed €750 billion recovery plan.The big questions is whether nations like Austria, Denmark, Sweden, Netherland and Finland will block the plan. The  issue is that these countries are opposed to the idea of large handouts on principle.However, despite their reluctance, the present crisis means their reticence may be seen as mean spirited in a time of shared humanitarian crisis. The pressure is for the countries concerned about the ideas of grants rather than loans to approve this proposed fund.On July 10 we had a German official state that Netherlands is unlikely to block the EU recovery fund which is supportive of the fund being accepted.

On Thursday we have the ECB rate meeting with little change expected. With the PEPP program increasing by €600 billion euros last month  it is unlikely that we see any changes to the PEPP program on Thursday.

The risk

If the recovery fund is rejected by the frugal four expect immediate downside for the EUR. However, given that the second day of the meeting is taking place over the weekend this is going to be weekend risk for the EUR.

ECB policy review and European summit

Nikkei 225 closes lower by 0.87% at 22,587.01

  
Analysis, Global Indices

Asian equities follow the declines from Wall Street overnight

Nikkei 14-07
It is a bit of a soggy mood in Asian trading with stocks ending on a weaker note, as we see the Hang Seng down by 1.7% and the Shanghai Composite also down by 2.0%.
This follows the late drop in US equities overnight, where the Nasdaq fell by a little over 2%. So far today, US futures are keeping little changed and that is more reflective of the current risk mood in the market.
Major currencies are keeping in narrow ranges as such, with EUR/USD seen at 1.1340 within a 15 pips range and AUD/USD at 0.6942 within a 23 pips range.

Heads up for oil traders – OPEC to release June report Tuesday

  
Analysis, Crude
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OPEC will release its monthly market report later on Teusday (I donlt don’t have the time sry).

  • will provide OPEC production numbers for June
  • which will show compliance levels so far (with the agreed cuts)
  • preliminary numbers showed compliance for the group was over 100%, aggregated,due to extra output curbs by from Saudi Arabia, the UAE and Kuwait

China June trade data, exports +4.3% y/y, imports +6.2% y/y (yuan terms)

  
Analysis, Economy
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china trade, yuan terms:

trade balance: expected CNY 425bn, prior was CNY 442.75bn

  • Exports +4.3% y/y: expected +3.5%, prior was +1.4%
  • Imports +6.2% y/y: expected -4.7%, prior was -12.7%

Exports have now risen for 3 consecutive months

The data is only dribbling out, do not have the trade balnce announced from China yet, nor the figures in USD terms. Nevertheless, bounce of both imports and exports is encouraging for the Chinese economy.

China has said trade with the US is down 6.6% y/y in H1.

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