Market movers today

Industrial production data due for Norway, Denmark and Germany today will be scrutinised to help gauge pace of economic recovery.

Later today Fed’s Bostic, Daly and Barkin are speaking. The market will pick up on comments with respect to the Fed’s plans for QE and forward guidance.

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Selected market news

Beijing did not report any new infections for the first time in a month. Meanwhile, in Australia, Victoria State is considering a four-week state-wide lockdown as the number of new COVID-19 infections continues to pick up. Yesterday it saw 191 new cases.

The Reserve Bank of Australia kept its cash rate and 3Y yield target unchanged at 0.25% at its monetary policy meeting this morning. It stressed it will not raise rate until CPI sustainably in target and progress made to full employment.

In the US, ISM non-manufacturing surprised yesterday and bounced all the way to 57.1 suggesting that recovery was under way in the service sector in June. The service sector is not out of the woods yet though, as resurgence in COVID-19 cases in big states Florida, Texas and California may have hurt consumption and service activity in July.

Market based inflation expectations have steadily started to recover in both the US and the euro area. Yesterday, the 5Y5Y US inflation swap rose above 1.90%, while its euro area counterpart at 1.14% was close to reaching a new cycle high yesterday. One implication of higher inflation expectations is a further push higher in EUR/USD. The pair made it back above 1.13 yesterday and we think it has further to go in the short term.

Reflation of the global economy is also getting a helping hand from commodity prices. Oil prices remain well supported by a number of factors. Yesterday, Saudi Arabia raised its prices on the US and Asian markets as demand is picking up. The USD has been on a broad-based downwards trend recently, which continued yesterday. Finally, financial markets in general are buoyed by positive risk sentiment, which has also spilled over to oil prices. Brent crude trades close to USD43/bbl and was close to the peak from June yesterday.

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