Essential Insights 

  • USD has seen flows following a failure to extended US unemployment benefits, sending concerns as to the well being of the millions that are still unemployed. It is likely this is more of a ‘technical retracement’ after weeks of heavy selling.
  • Australia has seen state Victoria now under an official lock down , with scope that this could last beyond 6 weeks. Today (at 05:30 AM BST) we have the RBA cash rate decision and minutes, to which this is highly likely to be addressed. Though with retail sale up 17% in May (above pre covid levels) the overall tone will probably be optimistic with a notable set back in Victoria. 
  • Whilst this has not really hit the spotlight yet, China are significantly behind on purchase commitments as part of of the US-China trade deal. China agreed to buy $200 bn of US goods for 2020 and 2021, so far Chinese imports total a mere $40.2 Billion

Noticeable FX Movements

The dollar index has staged a retracement , up +0.41%. This is likely a technical correction supplemented with positive manufacturing data after weeks of heavy selling. According to ING, the 94.50 level will be a difficult level for the index to clear.

Elsewhere AUD/USD is down -0.75% following the lock down in state Victoria

Market Tone

Markets are more on the risk-on side of things with equity bourses such as the Nasdaq 100 posting solid gains. Treasuries fell and the dxy bounced higher as US manufacturing expanded by its fastest rate since 2019.

Headlines suggesting that Trump may be able to enforce his own enhanced employment benefits is also providing an upbeat tone. One thing is clear however, market participants have entered this month with strong resilience to negative covid news/lock downs.

Covid-19 Data 

  • US CDC reported coronavirus cases rose by 58,947 to 4.6 million with deaths rising by 1,132 to a total of over 154 k.
  • As of Aug. 2, 2020, D.C. has 12,313 covid-19 positives and 122,480 negatives (4.0% new tests positive). Five hundred and eighty six have died to date (no change)
  • Overall there have been 18,298,855 cases of the virus and 693,957 deaths which represents a 3.79% fatality rate.
  • Cases in Virginia Total Cases: 88,904 Total Hospitalisations: 7,786 Total Deaths: 2,141
  • Florida cases rose 1% versus a previous 7-day average of 2%

US Oil Market Update 

U.S. Crude Oil managed to stay above $40/bbl with buying support between $39.50 and $40, despite supply concerns. Managers have reduced their net long US crude positions according to CFTC which showed a decrease of 14,644 contracts.

Supply concerns were triggered following Saudi Arabia and other Guld members ending their voluntary supply curbs , resulting in OPEC output rising by 1 million bbl a day. Furthermore, other members also showed a lack of commitment with the 13 members producing 23.32 million bpd , up 970,000 bpd in June.

Clearly supply concerns still linger.

US 

There has been a long standing distaste between Trump and Chinese technology companies , with the core of the issue revolving around illegal surveillance conduct by the Chinese government through Chinese companies operating in the US. Trump has taken the recent Tik Tok situation further by imposing a ‘broad array’ of measures that would apply to Chinese owned software companies

FED’s Kaplan emphasised in the importance of extended the $600 unemployment stimulus , though cited this will have to be ‘restructured’ , suggesting the amount could be reduced.

Equities 

US stocks extended its July bullish run despite rising covid-19 cases amid headline news on a virus relief packages.

The suggestion that Trump may be able to enforce his own unemployment benefits support US and European equity bourses.

It is worth bearing in mind however that US-China tensions are likely to worsen following an implementation of the ‘broad array’ of measures that will be enforced on Chinese owned software companies. China have already expressed their distaste over the situation with Tik Tok, it is likely a retaliation will be on the horizon.