Sample Category Title

Key insights from the week that was.

The week before the Osaka G20 proved to be very quiet, with a sparse calendar and as markets largely marked time.

For Australia, there was no data of significance, and comments by the RBA were kept broad. Appearing on a panel at an ANU leadership conference, Governor Lowe again highlighted global risks and reaffirmed the need for fiscal and structural policy to support the economy. Part of his justification here is that, when multiple nations are easing monetary policy in unison, it becomes more difficult for an individual central bank to boost their economy (at least in the short-term). This is because the immediate currency impact of easier monetary policy often nets out in these circumstances, and so the nation’s global competitiveness does not improve.

Over in New Zealand, the RBNZ met for their June meeting. As expected, they kept their cash rate unchanged at 1.50% but signaled that a near-term cut is likely – in line with Westpac’s August call. The press release noted twice that “a lower OCR may be needed” and the record of Monetary Policy Committee (MPC) meeting went further, with members agreeing that “more support from monetary policy was likely to be necessary” following a debate over the merits of an immediate cut.

The basis for this view is global economic uncertainty and its potential impact on New Zealand through trade, financial markets and confidence. On the domestic economy, the RBNZ’s views are mixed. Q1 GDP beat the RBNZ’s expectation, but the housing market has disappointed of late. On capacity, the outlook for employment and inflation was said to have weakened, further supporting the case for a cut.

Turning to the US, the focus was on Chair Powell who re-emphasised that risks are now front of mind for the Committee, particularly with respect to trade tensions and softer global growth. However, immediate policy action is not a given. While many “FOMC participants judge that the case for somewhat more accommodative policy has strengthened… [they] are also mindful that monetary policy should not overreact to any individual data point or short-term swing in sentiment”. In addition, Bullard, one of the FOMC’s most dovish members, tempered market speculation on a 50bps cut in July, stating this “would be overdone”.

Our base case remains September and December 25bp rate cuts by the FOMC to offset the effect of current trade tensions on business investment and consumption so as to sustain GDP growth around trend. But, if trade tensions between the US and China escalate this weekend, then the timing of these cuts could be brought forward to be in line with market pricing, beginning in July.

Press reports ahead of the meeting between President Xi and President Trump imply a high hurdle for an easing of tensions, both this weekend and in coming months. China has asked for the existing tariffs and the action against Huawei to be overturned before negotiations recommence. In stark opposition, President Trump wants all his demands met before he will stop threatening a further escalation of tensions let alone a reversal of implemented measures. With the meeting scheduled for Saturday, a clearer view of the outlook should be available by Monday.

Markets in wait and see mode

The G20 is finally underway and investors are now sitting and waiting in anticipation of whether talks between Trump and Xi can yield a positive outcome. Or has all the rhetoric of the last few weeks been for nothing.

Unfortunately for investors, the meeting between the two President's won't take place on Saturday morning which makes today's trading session all the more interesting. I guess by market close we'll know just how optimistic investors are because the rest of the weekend may feel like a long time if talks go badly.

That's assuming of course that people expect the stock market to fall in the event of talks collapsing. They recently hit record highs on the expectation that the Fed will cut rates two or three times before the end of the year, which you would expect is conditional on a deal not being reached. If talks collapse, the Fed will be backed into a corner and almost forced to follow through on rate cuts.

Most people seem to think progress will be made in Osaka though, although not to the extent that a full trade deal is agreed. A truce on tariffs is the base case, with negotiations restarting on the basis of previous deal breakers having been compromised on.

Of course, when you're dealing with someone as unpredictable at times as Trump, base case scenarios seem a bit pointless but I guess we'll see just how much desire there is on both sides to get a deal done.

Light positioning is the Friday theme as the G-20 summit begins. Asian indexes are mostly lower, while European stocks rise ahead of the highly anticipated meeting between the Presidents of the world’s two largest economies. Price action with the bond markets suggest both leaders are expected to deliver a fresh trade truce that will not see any escalation in tariffs. Some of the more optimistic analysts are expecting details to be hashed out for a timeline on when to finalize a long-term deal.

For the markets to believe both sides are inching closer to a deal, we may need to see the US offer some concessions on Huawei and for the Chinese to agree to go through the legal process of delivering structural reform. China can offer more on SOE reform, eliminating government subsidies, further changes to IP, and greater access to their markets.

The presidents’ Saturday lunch meeting after the G20 summit in Osaka should see a reset in trade talks with both sides delivering some minor changes to their respective red lines.

Dow Futures are higher by 0.3%, while the S&P is up 0.2% and the Nasdaq is little changed. European indexes are also mostly positive, while Asian markets closed down on their day.

Oil

Crude prices remain stuck in tight ranges ahead of two big events, the Trump and Xi Saturday meeting and next week’s OPEC and allies decision on extending production cuts. A trade breakthrough could provide a nice surge for crude prices, as some global growth uncertainties will be alleviated. On the production side, it appears the oil-producing countries are keen on extending their production cuts till the end of the year. The question for OPEC will be what will they do in 2020 as US production is expected to continue to grow. Will the oil-producing cartel be willing to continue to give up global market share to the US? Next week’s OPEC meetings is likely to see the production cuts kept in place, but markets will start to doubt that they will be willing to continue them beyond that.

Gold

Gold traders may be skeptical holding positions going into this weekend. The Trump-Xi Saturday meeting will deliver the latest chapter in the US-China trade war. Positive progress could see the yellow metal slump 1% when trading resumes on Sunday night (Monday for Asia). A complete collapse in trade talks or even lack of substance behind a reset in trade talks could see fresh six-year highs.

Once we get beyond the G20, a wrath of fresh stimulus from the world’s largest central banks should provide a nice backdrop for higher gold prices once the G20 dust settles.

Bitcoin

Bitcoin volatility remains on ludicrous speed as yesterday’s $3,000 drop has seen Bitcoin optimists buy up the cryptocurrency and defend $10,000 level. Call it bubble-like or tulip-mania, it doesn’t matter, Bitcoin appears it is not going anywhere anytime soon. The main bullish catalysts for digital coins was the strong vote of confidence it got from institutional investors and as mainstream commerce interest was reinvigorated with Facebook’s launching of their stablecoin.

Ahead of tomorrow's meeting with Chinese President Xi Jinping, Trump denied today on offering Xi a six-month reprieve on new tariffs. He expected the meeting to "productive" at a minimum, but didn't elaborate further.

Xi, on the hand, warned of "bullying practices" in his remarks to African leaders. And he said "any attempt to put one's own interests first and undermine others' will not win any popularity", without directly mentioning Trump's "America First" policies.

Notes/Observations

• G20 in focus for signs of any breakthrough on trade
• China President Xi in a meeting with African leaders ahead of the summit condemned protectionism and "bullying practices"
• Trump touts expecting to announce “very big” trade deals with both Japan and India
• BOJ alters its monthly bond-buying scheme for the 4th time this year
• European Jun inflation data continues to improve from month-ago levels (France, Italy and Euro Zone beat expectations)

Asia:

• BOJ Summary of Opinions reiterates stance that necessary to continue with powerful monetary easing as momentum toward 2% inflation is maintained
• Japan May Jobless rate: 2.4% v 2.4%e
• China President Xi stated at G20 that was seeing increases in global instability and protectionism; BRICs countries should work to protect ourselves from such risks (Note: did not directly mention the US in initial G20 remarks)

Europe/Mideast:

• UK PM candidate Johnson reportedly preparing an emergency budget for a no-deal Brexit; expected to include tax cuts and an overhaul of the stamp duty
• Russia and China agreed on payments in national currencies with agreement signed between PBoC Gov and Russia Fin Min

Americas:

• S&P affirmed United States sovereign rating at AA+; outlook Stable
• Trump administration reportedly mulling indexing capital gains taxes to inflation, could go around Congress to adopt tax change
• President Trump: Will talk about trade and disarmament with Putin; a lot of positive things will come out of very very good relationship with Russia
• White House Adviser Kudlow: US might move ahead on additional tariffs on Chinese products. Had no preconditions for Trump-Xi trade talks
• Fed's Daly (dove, non-voter): It's too early to say whether a rate cut is needed in July or what size it would be

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.2% at 382.9, FTSE +0.2% at 7417, DAX +0.5% at 12323, CAC-40 +0.1% at 5500, IBEX-35 +0.1% at 9161, FTSE MIB +0.3% at 21170, SMI -0.3% at 9826, S&P 500 Futures +0.3%]

Market Focal Points/Key Themes:

• European Indices trade mixed following a generally weaker session in Asia and slightly positive US futures with the G20 in focus.
• On the corporate front shares of Costain declines over 30% following a profit warning, with Oasmia Pharma declining on results and disclosures of suspicious transactions; Craneware also declines sharply following a trading update. Hornbach Holdings gains after a rise in both profits and Revenues, with CVS Group also gaining on earnings.
• On the M&A front Merlin Entertainment rises 14% following a 455p/shr offer; BT Group declines after Orange disposed of its remaining stake, Aurelius rises 7% after the €330M sale of Solidus Group, while Bank of Ireland sold its UK credit card portfolio for £530M.
• In other news UCB declines following EMA’s negative opinion on the Marketing Authorization Application for EVENITYTM; Deutsche bank gains following the FED’s stress test results, while Paypoint falls after failing to renew its contract with British Gas.
• Looking ahead notable earners include Constellation Brands, Motorcar Parts of America and Jinkosolar.

Equities

• Consumer discretionary: Casino [CO.FR] -2.5% (Goldman Sachs cuts stake), Hornbach Holding [HBH.DE] +4% (earnings), Merlin Entertainments [MERL.UK] +14% (cash offer)
• Financials: Deutsche Bank [DBK.DE] +3% (stress test results), Paypoint [PAY.UK] -4.5% (unable to renew contract), Craneware [CRW.UK] -30% (trading update)
• Healthcare: CVS Group [CVSG.UK] +7.5% (trading update)
• Industrials: BMW [BMW.DE] -0.5% (hiring freeze), Costain [COST.UK] -35% (profit warning)
• Technology: Tele Columbus [TC1.DE] +4.5% (analyst action)

Speakers

• EU Commission and Italy said to have discussed delay to any deficit procedure until the Autumn. Discussion would see decision on possible debt procedure pushed back to September or even October but would not affect decision, as Italy could still be sanctioned
• Netherlands PM Rutte commented tat G20 that he wanted an EU consensus on next Commissioner and that it would be logical for next EU commission Chief to come from European People's Party (EPP) but that is not the only option. Added that he himself was not planning to take a post as EU Commission Chief. Suggested that next ECB president did not come from Southern Europe, ECB presidency at the moment was not part of debate
• Italy PM Conte: govt working with EU to avoid penalty procedure
• Italy said to propose that Draghi serve as EU Commission chief
• China Foreign Ministry spokesperson Geng Shuang hoped U.S. met China halfway and ensured meeting a success
• Russia Energy Min Novak: Still in talks on future of OPEC+ deal

Currencies/ Fixed Income

• FX markets were subdues into month/quarter end with focus on the outcome of the G-20 meeting in Osaka this coming weekend.
• EUR/USD was slightly higher as European Jun inflation data continued to beat expectations. Pair trying to retest the 1.14 level. Euro region seen some stability in its data releases on the back-end of June.
• Dealers noting the softness in the greenback in recent week has sent Oil and gold staging comebacks in June best for their respective best one-month performance since January. Gold prices have risen over 8% for its best performance since the Jun 2016 Brexit vote

Economic Data

• (DE) Germany May Import Price Index M/M: -0.1% v -0.1%e; Y/Y: -0.2% v -0.2%e
• (DK) Denmark Q1 Final GDP Q/Q: 0.1% v 0.2% prelim; Y/Y: 1.9% v 2.2% prelim
• (DK) Denmark May Gross Unemployment Rate: 3.7% v 3.7% prior; Unemployment Rate: 3.0% v 3.1% prior
• (NO) Norway May Credit Indicator Growth Y/Y: 5.6% v 5.7% prior
• (FI) Finland Apr Final Trade Balance: -€0.3B v -€0.3B prelim
• (ZA) South Africa May M3 Money Supply Y/Y:9.1 % v 8.8%e; Private Sector Credit Y/Y: 7.7% v 7.7%e
• (FR) France Jun Preliminary CPI M/M: 0.2% v 0.0%e; Y/Y: 1.2% v 1.0%e
• (FR) France Jun Preliminary CPI EU Harmonized M/M: 0.3% v 0.0%e; Y/Y: 1.3% v 1.1%e
• (FR) France May PPI M/M: -0.4% v -0.8% prior; Y/Y: 0.8% v 1.9% prior
• (FR) France May Consumer Spending M/M: 0.4% v 0.3%e; Y/Y: -0.1% v +0.3%e
• (CN) Weekly Shanghai copper inventories (SHFE): 146.0K v 134.8K tons prior
• (ES) Spain Q1 Final GDP Q/Q: 0.7% v 0.7%e; Y/Y: 2.4% v 2.4%e
• (ES) Spain May Adjusted Retail Sales Y/Y: 2.4% v 1.5%e; Retail Sales Y/Y: 3.1% v 1.9% prior
• (CH) Swiss Jun KOF Leading Indicator: 93.6 v 94.8e
• (AT) Austria May PPI M/M: 0.0% v 0.2% prior; Y/Y: 0.8% v 1.4% prior
• (CZ) Czech Q1 Final GDP Q/Q: 0.6% v 0.6%e; Y/Y: 2.8% v 2.6%e
• (HU) Hungary Apr Average Gross Wages Y/Y: 9.0% v 10.6%e
• (HU) Hungary May PPI M/M: 0.5% v 1.0% prior; Y/Y: 2.7% v 4.1% prior
• (TR) Turkey May Trade Balance: -$1.8B v -$3.0B prior
• (SE) Sweden May Retail Sales M/M: -2.0% v -1.0%e; Y/Y: -0.5% v +2.3%e
• (SE) Sweden Apr Non-Manual Workers’ Wages Y/Y: 2.2% v 2.5% prior
• (TH) Thailand May Current Account Balance: -$0.4B v $1.0Be; Overall Balance of payments (BOP): -$0.6B v -$1.2B prior; Trade Account Balance: $1.4B v $0.1B prior; Exports Y/Y: -7.2% v -2.9% prior; Imports Y/Y: -0.2% v -0.4% prior
• (ES) Spain Apr Current Account Balance: -€0.4B v -€0.1B prior
• (NO) Norway Jun Unemployment Rate: 2.1% v 2.1%e
• (NO) Norway Central Bank (Norges) July Daily FX Purchases (NOK): -600M v -600M prior
• (RU) Russia Narrow Money Supply w/e Jun 21st (RUB): 10.43T v 10.46T prior
• (PL) Poland Jun Preliminary CPI M/M: 0.3% v 0.2%e; Y/Y: 2.6% v 2.4%e
• (CZ) Czech May M2 Money Supply Y/Y: 6.4% v 6.3% prior
• (UK) Q1 Final GDP Q/Q: 0.5% v 0.5%e; Y/Y: 1.8% v 1.8%e
• (UK) Q1 Final Total Business Investment Q/Q: 0.4% v 0.5%e; Y/Y: -1.5% v -1.4%e
• (UK) Q1 Current Account Balance: -£30.0B v -£32.0Be
• (PT) Portugal Jun CPI M/M: 0.0% v 0.1% prior; Y/Y: 0.4% v 0.4% prior
• (PT) Portugal Jun CPI EU Harmonized M/M: 0.4% v 0.3% prior; Y/Y: 0.7% v 0.3% prior
• (EU) Euro Zone Jun Advance CPI Estimate Y/Y: 1.2% v 1.2%e; CPI Core Y/Y: 1.1% v 1.0%e
• (IS) Iceland May Final Trade Balance (ISK): -2.6B v -16.4B prior
• (GR) Greece Apr Retail Sales Value Y/Y: -2.7% v +5.0% prior; Retail Sales Volume Y/Y: -2.0% v +5.4% prior
• (IT) Italy Jun Preliminary CPI M/M: 0.2% v 0.1%e; Y/Y: 0.8% v 0.7%e
• (IT) Italy Jun Preliminary CPI EU Harmonized M/M: 0.1% v 0.1%e; Y/Y: 0.8% v 0.7%e

Fixed Income Issuance

• None seen

Looking Ahead

• (IT) Bank of Italy (BOI) Q1 Credit Conditions
• 05:30 (SL) Sri Lanka Jun CPI Y/Y: 4.8%e v 5.0% prior
• 05:30 (IN) India to sell combined INR170B in 2021, 2026, 2031, 2039 and 2059 bonds
• 06:00 (IE) Ireland May Retail Sales Volume M/M: No est v 2.1% prior; Y/Y: No est v 4.0% prior
• 06:00 (IT) Italy May PPI M/M: No est v -0.9% prior; Y/Y: No est v 3.6% prior
• 06:00 (PT) Portugal Retail Sales M/M: No est v -1.0% prior; Y/Y: No est v 6.5% prior
• 06:00 (UK) DMO to sell €3.5B in 1-month, 3-month and 6-month bills £1.0B, £1.0B and £1.5B respectively)
• 06:45 (US) Daily Libor Fixing
• 07:30 (IN) India Weekly Forex Reserve w/e Jun 21st: No est v $422.2B prior
• 08:00 (ZA) South Africa May Trade Balance (ZAR): 0.7Be v -3.4B prior
• 08:00 (ZA) South Africa May Budget Balance (ZAR): No est v -63.5B prior
• 08:00 (BR) Brazil May National Unemployment Rate: 12.35e v 12.5% prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:00 (IN) India announces upcoming bill issuance (held on Wed)
• 08:00 (ES) Spain Debt Agency (Tesoro) a announces upcoming issuance
• 08:30 (US) May Personal Income: 0.3%e v 0.5% prior; Personal Spending: 0.5%e v 0.3% prior; Real Personal Spending (PCE): 0.4%e v 0.0% prior
• 08:30 (US) May PCE Deflator M/M: 0.2%e v 0.3% prior; Y/Y: 1.5%e v 1.5% prior
• 08:30 (US)) May PCE Core Deflator M/M: 0.2%e v 0.2% prior; Y/Y: 1.5%e v 1.6% prior
• 08:30 (CA) Canada Apr GDP M/M: 0.2%e v 0.5% prior; Y/Y: 1.5%e v 1.4% prior
• 08:30 (CA) Canada May Industrial Product Price M/M: -0.1%e v +0.8% prior; Raw Materials Price Index M/M: -3.0%e v +5.6% prior
• 09:00 (RU) Russia Q1 Final Current Account Balance: No est v $32.8B prelim
• 09:00 (CL) Chile May Unemployment Rate: 7.1%e v 6.9% prior
• 09:00 (CL) Chile May Industrial Production Y/Y: 0.4%e v 0.7% prior; Manufacturing Production Y/Y: +0.4%e v -1.4% prior; Total Copper Production: No est v 462.1K tons prior
• 09:30 (BR) Brazil May Primary Budget Balance (BRL): -16.1Be v +6.6B prior; Nominal Budget Balance: -49.5Be v -28.0B prior; Net Debt to GDP Ratio: 54.4%e v 54.2% prior
• 09:45 (US) Jun Chicago Purchasing managers (PMI): 53.5e v 54.2 prior
• 10:00 (US) Jun Final University of Michigan Confidence: 98.0e v 97.9 prelim
• 10:00 (MX) Mexico May Net Outstanding Loans (BRL): No est v 4.562T prior
• 10:30 (CA) Bank of Canada (BOC) Q2 Senior Loan Survey: No est v -2.7 prior; Future Outlook sales: No est v 6.0 prior
• 11:00 (CO) Colombia May National Unemployment Rate: No est v 10.3% prior; Urban Unemployment Rate: 10.8%e v 11.% prior
• 11:00 (EU) Potential sovereign ratings after European close (Fitch on Sweden)
• 14:00 (CO) Colombia Central Bank Jun Minutes

Weekend

• (JP) G20 leaders meeting to be held in Osaka
• (G20): Trump-Xi meeting in Osaka

During the past 24 hours, the Australian Dollar has moved just 32 pips against the US Dollar. The currency pair breached the weekly R2 at 0.7006 during the morning hours of Friday's trading session.

Most likely, the exchange rate will continue its upside movement today. The potential target for bullish traders will be near a resistance level formed by the monthly R2 at 0.7036.

If the weekly R2 holds, the currency exchange rate will make a brief retracement towards the support level set by the 50-hour simple moving average at 0.6995 during the following trading session.

The US Dollar was trading in a falling wedge pattern against the Canadian Dollar on Thursday. The currency pair breached the lower boundary of the pattern at 1.3087 during the Asian session on Friday.

A breakout through the bottom border the falling wedge pattern could occur within this session. If this breakout occurs, the exchange rate might end this week's trading sessions on a losing note.

However, the pair could reverse from the current price level at 1.3087 and aim for the 50-hour SMA at 1.3122 today.

The New Zealand Dollar traded with lower volatility against the US Dollar on Thursday. The currency pair, however, breached both the weekly and the monthly pivot points during yesterday's trading session.

Everything being equal, it is likely that the currency exchange rate will aim for the upper boundary of an ascending channel pattern at 0.6749 during the following trading session.

On the other hand, the NZD/USD currency pair might make a U-turn from the current price level at 0.6708 and move towards the 100-hour simple moving average at 0.6650 within this session.

The G20 is finally underway and investors are now sitting and waiting in anticipation of whether talks between Trump and Xi can yield a positive outcome. Or has all the rhetoric of the last few weeks been for nothing.

Unfortunately for investors, the meeting between the two President's won't take place on Saturday morning which makes today's trading session all the more interesting. I guess by market close we'll know just how optimistic investors are because the rest of the weekend may feel like a long time if talks go badly.

That's assuming of course that people expect the stock market to fall in the event of talks collapsing. They recently hit record highs on the expectation that the Fed will cut rates two or three times before the end of the year, which you would expect is conditional on a deal not being reached. If talks collapse, the Fed will be backed into a corner and almost forced to follow through on rate cuts.

Most people seem to think progress will be made in Osaka though, although not to the extent that a full trade deal is agreed. A truce on tariffs is the base case, with negotiations restarting on the basis of previous deal breakers having been compromised on. Of course, when you're dealing with someone as unpredictable at times as Trump, base case scenarios seem a bit pointless but I guess we'll see just how much desire there is on both sides to get a deal done.

Only bitcoin can recover from a 25% decline this quickly

The wild ride continues in the world of crypto, with bitcoin brushing off what would be a devastating 24 hours for any other asset, tumbling 25% in that time, to rebound more than 10% at the time of writing. I say this because this market moves so rapidly that it's probably out of date by the time I've finished writing this sentence.

When it comes to bitcoin, nothing surprises me so predicting whether we'll end the day back at new highs for the year or in the red is pointless. What is clear is that the Facebook story has re-energised the space in a remarkable way and reminded us of what we were seeing on a daily basis in late 2017. Suddenly $20,000 isn't looking too far away but as we learned early last year, $3,000 isn't either.

Gold showing the characteristics of a real store of value

It seems a bit dull moving from bitcoin to gold even though the latter is making headlines of its own after soaring - by its own standards - in recent weeks. Some may like to think of bitcoin as gold 2.0 but days like we've seen recently perfectly highlight just how ridiculous that is. How can something be a store of value and a safe haven when it's price can change so rapidly and aggressively, it just can't.

Given everything that we're seeing at the moment, gold is very much displaying the characteristics it's been long associated with. As the Federal Reserve prepares to cut rates, global economy faces a slowdown and tensions flare in the middle east, the safe haven, inflation hedge and store of value is performing admirably.

Oil stable ahead of Trump/Xi and OPEC meetings

Oil has been relatively stable over the last couple of days by recent standards. The surge we've seen has been largely driven by the flare up in the Gulf of Oman and declining inventories but we're now seeing some pause as prices sit near key resistance and we await the results of two hugely important meetings.

The first is obviously tomorrow's trade talks between Trump and Xi, with the OPEC meeting in a few days being the other as we wait to see just how committed producers are to output cuts.

The US dollar is start to slip lower on Friday against the Japanese yen after buyers failed to sustain the pair above the 108.00 level. Continued weakness below the 107.80 level may see the USDJPY pair test back towards its current monthly trading low. Technical indicators on the daily time frame still remains extremely oversold, despite the earlier corrective move.

The USDJPY pair is bearish while trading below the 107.80 level, key support remains at the 107.00 and 106.40 levels.

If the USDJPY pair trades above the 107.80 level, key technical resistance remains at the 108.10 and 108.55 levels.