Equities Back To Green; Cable Awaits BoE

Market Drivers For June 18, 2020

  • AU Employment misses
  • BOE on tap
  • Equities retrace losses
  • Nikkei -0.45% Dax 0.06%
  • UST 10Y 0.71
  • Oil $38/bbl
  • Gold $1727/oz
  • BTC/USD $9453

Asia and the EU

  • AU Employment -227K vs. -125K
  • SNB on hold

North America Open

  • GBP BOE 7:00
  • USD Weekly jobless claims 8:30
  • CAD ADP 8:30

Equities made a V shape reversal in early European trade retracing all of their Asian session losses after Chinese authorities reported that the coronavirus outbreak in Beijing was contained.

Earlier in the session risk assets came under heavy pressure with stock index futures dropping nearly 1% on news that PBOC eased its rates sharply on a 14 day reverse repo, but price action steadied and recovered by European trade.

The overall tone in risk markets remains indomitable with bulls still buying every dip as investors remain convinced that a global recovery in economic activity, steady government stimulus, and new therapies that are able to manage if not contain the virus all point to a brighter future for stocks.

However, with so much good news already priced in equities have struggled to reach fresh highs over the past few sessions and the S&P will need to decisively clear the 3100 levels while Nasdaq will need to push past 10,000 with authority in order for the momentum rally to continue.

In FX the Australian labor data came in much weaker than expected as the country shed -277K jobs versus -125k projected with Treasurer Frydenberg calling the report “devastating”. Still, Aussie recovered most of its post news dip and like other risk assets remained bid into the European session.

The big focus ahead will be on BoE with the market expecting the central bank to increase QE by 100B pounds and perhaps as high as 150B. A big stimulus boost would be positive for cable as the UK economy remains battered by the coronavirus lockdowns and the prospect of a hard Brexit with EU as negotiations show little progress. Cable has held steady at 1.2500 but if the BoE actions prove less than anticipated the pair vulnerable to a selloff as markets will begin to price in much more risk into the currency.

In North America, the focus will once again be on the weekly jobless claims with markets eager to see further improvement as businesses return to work. Much of the support for the near-vertical recovery in stocks depends on a quick resumption of economic activity and the weekly unemployment data has become the high-frequency barometer for that thesis. The market is anticipating a print of 1300K new claims but if claims fall below 1M that could be a major bullish catalyst for the day.

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