Risk-off assets took the lead this week as the top market focus continued to be on the recent run of negative pandemic developments and its potentially negative global economic impact.
For the major currencies, this driving theme was mostly beneficial to the Japanese yen, which managed to hold on to the top spot among the major currencies despite a risk-on rally on Friday.
Notable News & Economic Updates:
- Chinese Caixin services PMI slipped from 55.1 to 50.3 vs. 54.8 forecast in business activity
- IMF chief warns of ‘dangerous divergence’ in COVID recovery
- Bank of Israel holds rates, sees economic risks from Delta variant
- Global dairy prices fall -3.6% from the previous auction on Jun 15
- RBA tapers QE but affirms low rates outlook
- Fed keen to be ‘well positioned’ to act on inflation, other risks, minutes show
- Yellen to press G20 for minimum tax rate above 15%, US Treasury officials say
- U.S. to add more Chinese firms to economic blacklist on human rights violations
- European Central Bank sets its inflation target at 2% in new policy review
- Chinese CPI slumps from 1.3% to 1.1% instead of holding steady
- A deal on global tax reform will be finalized ‘very soon,’ German finance minister says
- Oil prices firm on Friday as U.S. inventories decline
- UK GDP in May: +0.8%, April revised to +2.0% from 2.3%
- WHO’s Chief scientist warns the pandemic isn’t slowing down
- BIS, IMF, World Bank say central banks must consider cross-border implications of CBDCs
- Dow jumps 440 points to record on Friday, rebounding from one-day slide
Intermarket Weekly Recap
There was very little in the way of major economic or geopolitical catalysts to spark any notable moves in the financial markets this week. And based on the price action across the different major asset classes, it looks like the main driving theme continued to be developments with the Delta variant of the COVID-19 virus.
This week’s COVID-19 updates pointed to an accelerated rate of new cases, especially in Asia. This prompted Japan to declare a state of emergency and ban spectators from the upcoming Olympic event, and we heard from the World Health Organization, which urged extreme caution against completely lifting public health measures.
This was likely the driver behind the outperformance in gold and the Japanese yen as traders de-risked on expectations that we may have passed peak recovery momentum and the potential for a slow down ahead. Treasury bonds also benefited from this theme, pushing yields lower through the Thursday session where we saw 10-yr yields hit an intra-week low of 1.251%.
Risk-on bulls were able to rebound on Friday, but there doesn’t appear to be a direct catalyst for the u-turn in market sentiment. Arguably, this was likely a technical rebound of a short-term oversold market and/or a profit taking move by traders ahead of the weekend.
In the FX space, again the Japanese yen was the best performer followed by the Swiss franc and U.S. dollar, a typical outcome when risk-off sentiment is the dominant market driver.
The comdolls were the biggest net losers among the majors with the Canadian dollar falling the most, likely with the help of falling oil prices earlier in the week (likely on the breakdown of output talks between OPEC and its partners) before its Friday bounce on falling U.S. oil inventories.
USD Pairs
- ISM Services PMI at 60.1 in June 2021 vs. 64 in May 2021
- Fed officials kept a patient tone in terms of tightening monetary policy, minutes show
- U.S. job vacancy numbers are jolt for employers
- Economic Optimism Falls Despite Jobs Recovery
- U.S. weekly jobless claims unexpectedly rise to 373,000, as job growth slows
- Top Fed official warns the COVID delta variant is a threat to the US economy and says the central bank will keep supporting growth
GBP Pairs
- Strong recovery in U.K. service activity continues, but cost inflation hits record high during June
- UK lockdown to end on July 19, PM Boris Johnson warns that pandemic is not over
- UK house prices fell in June as full stamp duty holiday ended, says Halifax
- UK house prices rise by most since 1988, but activity begins to cool- RICS
- The UK economy grew just 0.8% in May as manufacturing troubles caused the rebound to lose steam
EUR Pairs
- German service sector recovery accelerates at end of Q2 as economy continues to reopen
- Eurozone growth hits 15-year high – IHS Markit
- Eurzone Sentix Investor Confidence: 29.8 in July vs. 28.1 in June
- German Manufacturing in May 2021: new orders down -3.7% m/m
- German investor morale points to continued recovery despite drop
- Volume of retail trade up by 4.6% m/m in both the euro area and the EU
- German Industrial Production in May 2021: -0.3% m/m
- French Trade Balance: – € 6.6B in May 2021
- EU hikes its growth forecasts for the euro area but warns on the delta variant spread
- German Exports in May 2021: +0.3% m/m
- ECB tweaks inflation target, bolsters climate role
- Weidmann says ECB won’t seek deliberate inflation overshoot
CHF Pairs
- Swiss unemployment rate fell from 3.1% in May to 2.8% in June
CAD Pairs
- Bank of Canada survey: Q2 business sentiment improves, economic recovery seen broadening
- Canada’s Ivey PMI shows activity expanding at fastest pace in three months
- Canada posts big jobs gain in June with more still to come
NZD Pairs
- NZ business outlook bounces back in Q2 -NZIER
- BNZ joins ASB in predicting OCR will rise in November
AUD Pairs
- Australia’s MI inflation gauge rebounded by 0.4% after previous 0.2% dip
- Australian retail sales up by 0.4% vs. projected 0.1% uptick
- Australia’s ANZ job advertisements rose by 3.0% in June
- Australian building approvals tumbled by 7.1%
- Australian Service sector expansion slows but remains sharp in June
- Reserve Bank of Australia does not expect to raise rates before 2024
- Sydney enters another week-long lockdown on Delta variant spread
- Australia AIG Performance of Services Index – June 2021
- Australia’s jobless rate needed at ‘low 4s’ for inflation to emerge – RBA chief
JPY Pairs
- BOJ cautiously upbeat on regional Japan as divergence widens
- Japan services economy sees softer fall in business activity
- Japan’s May real wages post largest monthly gain since June 2018
- Japan households cut spending from April level amid restrictions
- Japan’s bank lending rise at slowest pace in 8 years as COVID-19 hit subsides
- Japan to declare COVID-19 emergency for Tokyo as it mulls Olympics without fans
- Japan service sector sentiment rises in June
- Olympics will ban spectators after Japan declares state of emergency
- Japan’s households, firms keep saving on prolonged impact of pandemic
