As concerns over a second wave of Coronavirus in China and the US ramp up, risk-off is the general theme across equity markets which ended last week on a broadly positive note despite the IMF warning of a further 2020 growth downgrade. Asian bourses closed negative today and European exchanges and US futures are on the back-foot so far this morning. Having closed at ~36, the VIX Index spiked as high as 44.44 this morning. USTs yields are lower this morning, with the 10-year trading around 0.67%, having closed at 0.71% on Friday. Meanwhile, the dollar remains supported.
China data this morning showed the economy bounce at a slower pace versus expectations. Industrial production missed expectations for a 5% gain in May, released at 4.4%, and retail sales continued to fall. Of interest is China’s robust steel production which expanded 4.2% in May; supported by the recent bout of infrastructure stimulus unleashed at the NCP gathering. Aside from the FDI reading later this week there is little more in the way of key data from China, although markets will be focused on the news of the outbreak in Beijing.
We expect the worldwide protest movement, which grabbed headlines over the weekend, to remain a feature this week. We also have a number of rate announcements from the likes of the Bank of Japan (Tuesday) and the Bank of England (Thursday); it will be interesting to see what the outcome is from the latter following the disappointing GDP, industrial production and manufacturing numbers we saw on Friday morning. Moreover, as PM Johnson looks to further open up the economy all eyes will be locked on the ongoing Brexit talks. Johnson is set to talk to presidents of the European Council, Commission and Parliament today as part of the Brexit Withdrawal Agreement; little progress is expected and with only six months of negotiations remaining the pressure is on for both sides to compromise and agree on a trade deal.
Fed Chair Powell is due to testify to the Senate Banking Committee tomorrow and the House of Financial Services Committee on Wednesday on the semi-annual monetary policy report. Also on Wednesday, markets expect Brazil’s central bank to slice rates for the 8th consecutive time to all-time lows of 2.25%. Friday will witness Trump’s first live presidential rally since lockdown, and EU leaders will discuss the EC’s EUR750bn recovery fund proposal. For those sports fans out there, the Premier League kicks-off on Wednesday with Manchester City taking on Arsenal behind closed doors. A fairly light data week will see the May Empire manufacturing index later today. US industrial production and retail sales readings are due on Tuesday; retail sales are expected to rebound in May following the -16.4% collapse in April. UK CPI prints and US building starts and housing permits for May are out on Wednesday.