Equity markets have continued the risk-on tone which we witnessed last week, effectively shrugging off the ramping up of US-China tensions, as scientists get closer to creating a coronavirus vaccine. The S&P maintained its near three month rally last week, gaining over 3%. Meanwhile USTs gained into the month-end, 10-years closed at 0.65% resulting in a 2s10s curve flattening; this has been somewhat reversed so far this morning, however. The dollar has continued its retreat this morning after last week’s 1.52% fall in the DXY Index. Elsewhere, Brent has maintained its gain this morning, having closed above $35pb on Friday, the 3-month futures are currently trading above $37pb.
Although Trump’s press conference on Friday was a non-event, in terms of details and timings on threats of penalties on China in relation to Hong Kong and other issues, we expect US-China relations will be monitored closely this week. Also, of interest this week will be the ongoing UK-EU negotiations; little progress has been made so far and there are growing concerns over the gridlock ahead of the EU summit this month. On Thursday, the ECB holds its policy meeting, investors are holding on to hopes that the central bank unleashes further stimulus especially as the region faces a severe Q2’20 downturn. Elsewhere, Argentina’s government will be up against the deadline on Tuesday as negotiations with bondholders over debt restructuring come to an end. Last week the country was placed on restrictive default following missed coupon payments.
Data wise, we had China’s official PMI readings over the weekend, although the manufacturing sector slipped slightly in May, non-manufacturing activity improved and both readings remained in expansion territory. This morning’s Caixin manufacturing PMI smashed expectations for a sub-50 reading, bouncing into expansion at 50.7. We will get a bunch of global PMI data readings which could be of interest this week, including the US Markit PMIs and US ISM manufacturing print later today, expected at 43.5. US Factory orders and durable goods prints for May are due on Wednesday, the US’ trade balance follows on Thursday. The week ends with the US employment print for May, where unemployment is expected to jump to 19.6%.