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MARKET MOVERS

29th June

Samuel Soo

Spike in COVID-19 in Australia, China and the U.S.

  • Victoria confirms 41 new cases of Coronavirus in a day, NSW records 6 new cases, just as restrictions are loosening.
  • U.S. records 45,000 new cases of COVID-19 on June 26, single largest increase in the pandemic, exceeding highest of 36,400 new cases set on April 24th
  • With the reminder of the COVID-19 outbreak in China, investors are more doubtful of a swift economic recovery and are turning to safe havens like the U.S. and Japan rather than the Euro, the Pound, or the Aussie dollar.

US threatens to impose $3.1B worth of tariffs on European and UK goods

  • The U.S. trade representative wants to impose tariffs on olives, beer, gin and trucks, while increasing duties on products including aircrafts, cheese and yogurt (Bloomberg)
  • The introduction of tariffs will reduce the competitiveness of UK and European goods in the US, negatively impacting performance of related businesses.
  • This move is related to Europe and America’s ongoing WTO aircraft subsidy fight between Airbus and Boeing.
  • With U.S. reportedly stepping back from settlement talks, EU Trade Commissioner Phil Hogan speculates that EU will have no choice but to retaliate and impose its own sanctions

U.S. Durable good orders and Markit PMI exceed forecasts, suggest recovery while initial jobless claims stabilise at an elevated level

  • Markit Manufacturing PMI exceeds forecast of 48 with a reading of 49.6
  • Markit PMI measures performance of manufacturing sector: >50 indicates growth, <50 indicates contraction, =50 indicates no change
  • Durable good orders in May exceeded forecasts of 10.9%, measured as 15.8%, rebounding from lows of -18.1%
  • Initial jobless claims flattening out at 1.48 million, a sign that economy is struggling to keep workers employed
  • Key figures to look out for over the next week are NFP, PMI and sentiment

MAJOR NEWS

FED stress test results
29th June

Paul Huang
 
On Thursday June 25th, the FED released their stress test results which accessed how major banks would hold up amidst the coronavirus pandemic under 3 scenarios: V shaped recovery, U shaped recovery, and W shaped recovery.  The test revealed that several banks could potentially reach their minimum capital level based on the Basel III requirements of maintaining a certain amount of cash. 34 banks were found to possibly hit loan losses between $560 bil to $700bil under the 3 hypothetical downside scenarios. Thereafter, there has been new limitations on the banks to suspend share buybacks in Q3 to preserve much needed capital for reserves. Furthermore, dividend payments are also now capped to the level’s banks paid out in the Q2.

TECHNICAL ANALYSIS

GBP/USD

Paul Huang
 
GBPUSD has been bouncing off strong monthly support at 1.21429 dating back since 2016. Denoted by the violent wick, the weekly has made a strong close below the level at 1.24970 which previously acted as support and now resistance. It is probable that we move back to test monthly support at 1.21429.

ANALYST OUTLOOK

Samuel Soo
BActSt (Co-op)
AUDUSD – Bearish
The AUD/USD pair has been relatively stable over the past week following a four-month long rally as restrictions were lifted across Australia, retracing gains after reaching past Dec 2019 highs of 0.703 to consolidate at 0.690. It appears investors are waiting for an update, whether it be how the COVID-19 outbreak in Victoria unfolds, unemployment figures or new insights on Australia’s trade relations with China. Based on the level of uncertainty, we may see investors creep towards the 0.680 support level by the end of next week.

Paul Huang
BSc (Biotechnology)
EUR/USD – Bullish
Euro/Dollar has been trying to retrace back up the leg down that started in Feb 2018. It has recently started regaining support levels and could potentially test 1.15051 again.  The ECB’s lending of 1.3 trillion euros to banks, in an attempt to support suffering businesses, could weaken the euro through increasing the money supply. However, with the US also providing large scale stimulus payments the effect of the 1.3 trillion-euro lending would be mitigated.