During a rare week, the new number of coronavirus cases did not dominate the headlines. However, lack of a new stimulus package related to the coronavirus from the US federal government did. Payroll reports from both the US and Canada were better than expected. The US-China feud continues over technology theft, with the Trump Administration now going after TikTok and WeChat. The US has also placed tariffs on Canada! Turkey is in a heap of trouble as USD/TRY trades to new all-time highs. Both the BOE and RBA left rates unchanged, as expected, however in a surprise move the BOE upped their GDP forecasts! As earnings season comes to an end and with a light data week ahead, headlines will be market movers this week as politics may trump the coronavirus!
With no agreement in sight, congress may head to recess leaving Americans uncertain about future action. However, President Trump may sign Executive Orders to implement emergency measures. At the heart of the issue is the extension of supplemental unemployment insurance. These benefits expired on July 31st, and Republicans and Democrats are at odds as to how much in the supplemental unemployment insurance should be extended to each person. The Democratic controlled House passed a $3.5 trillion package in May, which would extend the extra benefits at the current pace of $600 per week. However, the Republican controlled Senate is looking for a smaller package, somewhere in the area of $1 trillion, which would cut additional benefits to $200 per week and a national moratorium of evictions. US President Trump has threatened in intervene and sign Executive Orders if negotiations are not settled soon.
US Nonfarm Payrolls were released Friday at +1,763,000 new jobs vs and expectation of +1,600,000. Although this was well below the +4,791,000 jobs created in June, it was still better than expected. However, only +26,000 of those jobs were in manufacturing, as opposed to +356,000 expected. Democrats are likely to spin this as a job creation slowdown (from June) while Trump has already begun to spin this as one of the best months for job creation ever. (Recall that over -20,000,000 jobs were lost in April). Job creation will be one of the hot topics for debate heading into the November 3rd elections.
Canada also released jobs data on Friday, adding 418,000 jobs in July after 952,000 in June. (Recall Canada lost -2,000,000 jobs in April). In addition, Canada released the Ivey PMI for July and the print was 68.5 vs 57.5 expected. Canada’s manufacturing sector is picking up! The Trump administration also imposed tariffs in Canada’s aluminum exports, however Canada retaliated saying they will propose dollar for dollar tariffs on US products. This is most likely just political posturing by Trump ahead of elections. USD/CAD is near unchanged for last week.
US-China bickering has continued over the last week as President Trump announced that he wants Microsoft to buy Chinese company Tic-Tok, as the US feels China is stealing personal data. He followed up the talk with an executive order that bans US transactions on TikTok owner Bytedance and Chinese tech company Tencent, which runs messenger WeChat. TikTok said they would pursue legal action. Expect further retaliation from China over the next week, straining relations with the US even further.
Turkey continues to have internal problems and the TCMB, Turkey’s Central Bank, could not contain them any longer. The Central Bank has been supporting the Turkish Lira by selling its reserves and buying Lira. The proverbial dam finally broke this week and Lira selling finally overtook Lira buying, pushing USD/TRY to all-time highs near 7.3558. The Central Bank finally stepped on Friday and tightened monetary policy by what amounts to 150 bps hike.
***Due to ongoing market volatility and the current impact on Turkish lira, pricing and overnight financing charges on TRY markets may increase during this period. If you are holding a position in these markets please ensure your account is adequately funded to maintain these positions.***
The Reserve Bank of Australia (RBA) and the Bank of England (BOE) met last week and both left rates unchanged, as expected. In the RBA Statement on Monetary Policy, the Central Bank said the unemployment rate could stay near its peak if coronavirus outbreaks continue. Australia reports it employment change this week. In addition, they RBA their outlook is highly uncertain, and it needs to consider all possible outcomes. AUD/USD reached marginal new highs last week near .7243. The BOE surprised the markets with an upward revision to their Q3 GDP outlook. Although no members voted for negative rates. BOE Governor Baily did note that they remain a tool in their toolkit. The Reserve Bank of New Zealand (RBNZ) meets this week and will have to address the coronavirus as well, however New Zealand hasn’t had any outbreaks like those in Australia and the UK.
US Democratic Presidential Nominee Joe Biden was expected to announce his running mate last week, however as of the time of this writing, he has not done so. Watch for a Vice President pick over the weekend.
Although earnings season is just about over, there are 3 key earnings to watch this week. They are: JD.com, TCEHY, and BIDU.
Economic data this week is mostly second tier data, however some key data points include UK Claimant Count for July and Q2 GDP, Australian Employment Change, and a plethora of Chinese data. Other data is as follows:
- China: Inflation Rate (JUL)
- China: PPI
- Australia: NAB Business Confidence (JUL)
- UK: Claimant Count Change (JUL)
- Germany: ZEW Economic Sentiment Index (AUG)
- Canada: Housing Starts (JUL)
- US: PPI (JUL)
- Australia: Westpac Consumer Confidence Change (AUG)
- New Zealand: RBNZ Interest Rate Decision
- UK: Trade Balance
- UK: GDP Growth Rate Prel (Q2)
- UK: Industrial Production (JUN)
- UK: Manufacturing Production (JUN)
- UK: Trade Balance (JUN)
- EU: Industrial Production (JUN)
- US: Inflation Rate (JUL)
- Crude Inventories
- Australia: Employment Change (JUL)
- China: FDI (YTD): (JUL)
- China: New Yuan Loans (JUL)
- Germany: Inflation Rate (JUL)
- US: Initial Jobless Claims (week ending August 8th)
- New Zealand: Business NZ PMI (JUL)
- Australia: RBA Gov Lowe Speech
- China: Fixed Asset Investment (YTD) JUL
- China: Industrial Production (JUL)
- China: Retail Sales (JUL)
- China: Unemployment Rate (JUL)
- EU: GDP Growth Rate 2nd Est (Q2)
- EU: Employment Change Prel (Q2)
- US: Retail Sales (JUL)
- US: Industrial Production (JUL)
- US: Manufacturing Production (JUL)
- US Michigan Consumer Sentiment Prel (AUG)
Chart of the Week: Weekly USD/TRY
Source: Tradingview, FOREX.com
In May of this year, USD/TRY put in a shooting star with a high of 7.2683, resulting in a false breakout above the previous August 2018 all-time highs of 7.0831. The RSI was overbought at the time, slightly above 80, so a pullback was not out of the question. The pair pulled back to 6.6834 in early June and has been trading between 6.8105 and 6.8608 until recently. This week, the pair broke significantly above the previous shooting star from May and put in new all-time highs at 7.3558, while closing the week near 7.2745, up nearly +4.5% for the week! The RSI has moved into overbought conditions near 77 and is diverging slightly, however it is still pointing higher. With such a strong green candlestick on the weekly timeframe, it appears USD/TRY can continue higher. Resistance comes in at the weekly highs, then the 1.272% Fibonacci Retracement level from the May highs to June lows near 7.4172 and the psychological round number of 7.5000. Frist horizontal support is 7.0831, the weeks lows near 6.8796, and the June lows at 6.68277.
As the bickering between US Republicans and Democrats continues over the new coronavirus stimulus bill, no one wins, regardless of an executive order. Watch for continued headlines this week. In addition, volatility may ensure as US-China tensions heat up once again, this time over Chinese tech companies in the US (Will Mircosoft really buy TicTok?). Hopefully, increases in new coronavirus cases will not be the headlines, and with any luck, the numbers begin to move lower!
Have a great weekend and please remember to always wash your hands!