The Daily Update - The Week Ahead

A broader risk-on week across asset classes saw the likes of the S&P500 Index rise 1.76%, and VIX Index stabilise around the 27 level. Meanwhile the yield on the 10-year UST closed 2bps lower, at 0.64% last week, having rallied to lows of 0.57% on Thursday. The risk-on momentum has continued so far this morning, with Asian bourses and European equity markets extending their gains; US stock markets are also on the rise. Equity markets are clearly shrugging off the rise on Covid-19 cases in the US, and Trump’s comments that the US-China relationship is “severely damaged’, adding that a Phase II deal is unlikely.

Staying with the US, the Fed’s Mester suggested “if we don’t get further fiscal support things won’t come back as well as they could”, while Clarida stated that “there is more that we can do” if we need to, whether in terms of forward guidance or balance sheet. The White House also noted its concerns, calling on Congress to agree to another stimulus package ahead of summer recess. Also last week, Trump formally withdrew the US from the WHO, a move Democratic opponent Joe Biden said he will reverse if nominated. Closer to home, BOE chief economist Haldane warned that the virus outbreak has been “dramatic, traumatic” for the UK economy, adding, “there is a huge amount of uncertainty about what paths the economy might take from here”. A huge amount of uncertainty also lies ahead with regards to the UK-EU trade agreement. A campaign with the slogan “The UK’s new start: let’s get going” launches today, it outlines what businesses and individuals should prepare for and expect when the UK’s transition phase comes to an end on December 31. Elsewhere, Fitch warned that the Covid-crisis driven downgrades could see sub-investment-grade sovereigns outnumber investment-grade sovereigns for the first time.

While some lockdown and travel restrictions continue to ease across the globe this week, areas in the US and Australia have reinstated closures. Q2’20 earnings season in the US kicks-off with a host of bank reports. Today we’ll hear from BoE Governor Bailey speak on “Libor: Entering the Endgame” and later Dallas Fed President Kaplan is due to discuss testing for Covid-19 and the path of economic recovery. The US monthly budget statement will attract attention later today. Tuesday will see France celebrate Bastille Day, Macron is expected to lay out his leadership plans for the last two years of his term The ECB’s bank-lending survey is also due to be released. In terms of data we have the China trade prints, UK GDP, Euro Area IP, US CPI and the German ZEW survey.

Wednesday kicks-off with BoJ’s policy decision and Kuroda’s briefing. Later Silvana Tenreyro will discuss “Covid-19 and the economy: what are the lessons so far?”. Meanwhile, following Tuesday’s OPEC production and compliance report the cartel is due to decide whether to extend or ease the production cut. US Empire manufacturing, IP and the beige book releases will be of interest as will the UK inflation print. A busy Thursday starts with China’s Q2’20 GDP, IP, retail sales and fixed asset prints, and the UK unemployment and jobless claims readings. Later, the ECB rate decision will be followed by President Lagarde’s briefing. The US retail sales readings for June will be watched closely as the economy reopened but also witnessed a rise in Covid-19 cases. Friday will see the 27 EU members reconvene in Brussels to attempt to agree on a huge economic stimulus and recovery package; something they could not agree on a month earlier. US building permits, housing starts, and sentiment readings end the week.