Asian stocks posted mild losses overnight amid investor concerns around an increase in Coronavirus cases in US, Europe and China as some lockdown measurers have temporarily been put back in place. However, on Sunday only 9 new cases were reported in Beijing down from 22 earlier.

In FX, both the AUD and NZD traded higher amid the decline of coronavirus cases in Beijing. AUDUSD traded c.0.45% higher to 0.6875 and NZDUSD was c.0.40% higher with an intra-day high of 0.6437. USDJPY traded unchanged around 106.88 after falling 0.50% last week

Markets remain driven by different crosscurrents, keeping sentiment relatively in check. Concerns about a second wave of COVID-19 infections are capping the optimism stemming from the phased reopening of economies, plentiful policy support and slowly improving data.

In the near term, Barclays Research has a less negative view on risk assets and EM FX, as the supporting policy and data factors are likely to remain in place.

FX Observations

EUR/USD

EU leaders meeting on Friday ended without an agreement, as
expected. But the tone seemed fairly positive listening to Merkel’s press conference afterwards. There is an overall agreement of necessity and structure of the rescue plan.

They will meet again in July, ideally in person, to finalise the deal in the best case. The single currency had a very short lived rally on back of that, overall price action is still not constructive as we have seen lower lows and lower highs for the best part of last week.

Recovery in stocks and tightening of peripheral spreads had a limited impact on FX for now. So just purely based on momentum looking to sell rallies for now, stop 1.1260

GBP/USD

Cable is tracking a 0.3/4% climb since Friday in line with its G10 peers with little of note at home to push the currency away from the pack aside from written comments by the BoE’s Bailey indicating he’d prefer to unwind the bank’s balance sheet before raising rates; in contrast to Carney’s preference for waiting until the bank rate reached 1.5% before a reduction.

Domestic risks will be few and far in between this week outside of tomorrow’s Markit PMI release and the possibility that No 10 chooses to further relax containment measures as new cases in the country remain on a descending trajectory—albeit stalling 1.2k on average over the past week—faced with worries that the hit to the British economy is proving too large to handle.

EU-UK trade talks are set to enter their expedited phase next week as negotiators rush to iron out an agreement before the fall, although the same issues remain with no obvious signs of either side loosening their demands. We expect the GBP to continue to trade in line with the broad USD sentiment.