Tue, Jul 07, 2020 @ 05:18 GMT
Dollar weakness was the main theme over the whole week. It started with worries over Trump's tariff threats to Mexico. Then Fed officials came out acknowledging the risks from Trump's tariff policies and signaled their openness to rate cuts...
Sterling, Canadian Dollar and Euro surged broadly last week on hawkish comments from central bankers. The turn in BoE Governor Mark Carney was the most drastic as just a week a go, he said it's not the time of rate hike yet. But then, he indciated the BoE MPC will start debating raising interest rate in the coming months. BoC Governor Stephen Poloz repeated his comments that prior rate cuts in 2015 have already done their job. But this time, Poloz hinted that BoC is approaching a new interest rate decision. That tremendously raised the odds of a July hike by BoC. There were some jitters on Euro on report that markets misinterpreted ECB President Mario Draghi's comments. But after all, it's generally convinced that, with improvements in Eurozone inflation and growth, ECB is transiting into a phase of stimulus withdrawal. And there would likely be tapering announcement in September or by latest October.
Dollar ended the week as a big loser after the highly anticipated Jackson Hole Symposium. It was pointed out before that there were little expectations for comments on monetary policies from Fed Chair Janet Yellen and ECB President Mario Draghi. And the reactions indeed showed that traders were relieved by the lack on cover on monetary policies. And business returned to usual with EUR/USD resuming recent up trend while Dollar was back under pressure. While Dollar still managed to end higher against Yen, near term outlook remained bearish in USD/JPY and it's just a matter of time to see downside breakout in the pair. Focus will now turn to key economic data including non-farm payroll from US but it's unlikely to safe the Dollar. Another focus to watch this week is another round of Brexit negotiation.
While US equities surged to new record high last week, other markets didn't follow. Dollar ended mixed in spite of a chorus of hawkish comments from Fed officials, including chair Janet Yellen. A batch of stronger than expected data also provided little support to the greenback. Instead, Dollar was dragged down by treasury yields, which failed to break out from recent range and reversed during the week. Political uncertainties could be a major factor in triggering safe haven flows to US bonds. And such sentiment could also be seen in the broad based weakness in Euro, which closed as the second weakest major currency next to Sterling. Swiss Franc decouple from Euro and Sterling and ended as the second strongest currency. And overall risk aversion on European situation could be the factor in driving up the Japanese Yen, which ended as the strongest major currency.
Euro surged broadly last week and led European majors higher on expectation that pro-EU centrist Emmanuel Macron will have an easy win in French presidential election this Sunday. Traders seemed to have ignored the news about hacking attack on Macron's campaign. With 20 pt lead over EU-sceptic far-right Marine Le Pen, there should be enough safety margin for Macron. The focus is now on the reactions in that markets on the results during the initial part of next week. As Macron's win should be well priced into the markets, there is prospect of a setback in Euro after the facts. However, judging from the strength in European indices, it's believed that there is solid underlying optimism in the European economy. And, strategy could indeed be "buy-pull-back" rather that "sell-on-news".
The financial markets traded with solid risk appetite last week and the three major US equity indices surged to new record highs in US president Donald Trump's first week in White House. Markets took Trump's signing of some executive orders, include trade and immigration, as sign that he will deliver his election promise and push an expansive fiscal policy. Nonetheless, the rally in stocks and yields lost some steam towards the end of the week after disappointing Q4 GDP data. And Dollar ended mixed. Meanwhile, Sterling ended as the strongest major currency as Supreme Court ruled that prime minister Theresa May's Brexit plan must seek parliament approval. The sale of a new 40 year government bond in UK also attracted record demand, showing appetite for UK assets. Meanwhile, Yen ended as the weakest one as BoJ stepped up its asset purchases to cap the rally in JGB yields.
Dollar ended last week as the weakest currency as markets took Fed Chair Janet Yellen's testimony as a dovish one. Traders further pared back bet on a rate hike in September. And the development was accompanied by surge in stock indices to record highs. Canadian Dollar ended as the second strongest as lifted by BoC rate hike and rebound in oil prices. But it was outshone by Australian dollar which soared on iron ore prices. Sterling followed as markets continued to adjust their expectations on a near term BoE hike after central banker comments. Euro and Swiss Franc followed Dollar as the weakest ones ahead of ECB meeting this week. Meanwhile, Yen traded mixed as focus is turning to BoJ meeting.
US stocks soared to new record high last week on resurgence of talk of president Donald Trump's expansive policies. In particular, bulls regained control after Trump said he would announce "phenomenal" tax reforms within two or three weeks. DJIA closed the week up 197.9 pts, or 0.99% at 20269.37. S&P 500 gained 18.7 pts or 0.81% for the week to close at 2316.10. NASDAQ rose 67.4 pts or 1.19% to close at 5734.13. All three major indices closed at record highs. The developments helped lift treasury yield from intra-week selloff. 10 year yield closed at 2.409 after dipping to 2.325, comparing to prior week's close at 2.491. Dollar was given a boost and ended as the second strongest major currency, next to Sterling. The Dollar index closed at 100.71, up from prior week's close at 99.73. Fed chair Janet Yellen's testimony to Congress will be a major focus this week. But Trump's tweets and any economy-related announcements will be the things that move markets.
Expectations setting were rather well set for the highly anticipated Trump-Xi meeting at G20. Both sides agreed to stop raising tariffs further. But it's unsure whether they've closed the huge gap that led to collapse in trade negotiations. If...
Yen surged broadly last week and ended as the strongest one as partly driven by flattening yield curve, and partly by global risk aversion. Selloff in oil was one of the major factors driving equities down. Euro and Swiss Franc followed Yen with the common currency supported solidly by strong German GDP. On the other hand, commodity currencies ended as the weakest ones. In particular, data from Australia suggested that RBA would stay on hold for longer than originally expected. Meanwhile, inflation data from Canada argued that BoC won't rush into another rate hike. News from US were mixed. On the positive side, a big step was made with passage of the tax bill in House. On the negative side, the real challenges lie in Senate where Republicans only have a slim majority. And, efforts to reconcile the bills of both chambers are huge. Also, there are concerns of political instability as Special Counsel Robert Mueller's Russian probe is getting closer to US President Donald Trump. But so far, US financial markets have displayed much more resilience than others.
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