The US stock indices closed higher with a late rally after some choppy trading on Thursday, with bank stocks soaring ahead of the release of the annual stress test results, helping to offset the ongoing concerns over the alarming increases in new coronavirus cases. In after-hours trading though, the Fed has disqualified banks from doing any share buybacks in Q3 and has also capped dividend payments at Q2 levels which has taken some of the steam out of the rally, with banks giving back some of their earlier gains. The Fed explained that it is capping dividends following Covid-19 sensitivity analysis to ‘ensure that the banks remain resilient despite the economic uncertainty’. The Fed also added that the largest U.S. banks are likely strong enough to survive the coronavirus crisis but warned a prolonged economic downturn could saddle them with hundreds of billions of dollars in losses on soured loans.
Stocks ended the session up by around 1% and the futures markets are hanging on to most of the gains. In the FX markets, most pairs were choppy although the Euro is a little heavy, albeit back above the 1.1190 low, but weighed by fears of a second coronavirus wave in the US and to a lesser extent in Europe, favoring the dollar on safe-haven grounds. The Euro received little help from the WHO, who warned that the curve is on the rise in Europe, with an average of 20,000 new cases per day and 700 daily deaths.
In other markets, Gold chopped around previous levels as it consolidates below the previous session’s 8 year high, while oil regained a little of the lost ground seen on Thursday to currently sit just under 40pb (WTI).
In terms of data, the annualised Q1 US GDP figure came in right on expectations at -5% and had little effect on the markets, although the core PCE did tick up slightly to 1.7% from prior 1.6%. Elsewhere from the US, the weekly initial jobless claims rose 1.48m (vs 1.32m expected) offsetting the continuing claims which slowed to 19.52m (exp 20.0m, prior 20.29m). The May Goods Trade Deficit widened to -USD74.3bn (exp. –US$68.1bn, prior –US$D69.7bn), while the preliminary Wholesale inventories fell 1.2%mm in May. The Durable goods Orders rebounded to 15.8%mm, better than the expected 10.5%mm, with ex-transport rising to +4.0%mm (exp +2.1%mm). Kansas City Fed manufacturing index for June rose to +2 (from prior -25).
Looking ahead, Friday will kick off with the NZ Consumer Confidence figure and the Japan Tokyo CPI (exp 0.6%yy/June). The BOE Quarterly Bulletin is the only point of interest in the European session, while form the US we get to see the Personal Consumption/Expenditure Index figures for May (exp: Personal Income,-6%; Personal Expenditure +9%), the Michigan Consumer Sentiment Index (exp 79; Previous 78.9) and the weekly Baker Hughes Oil Rig Count. Have a good weekend.
Economic data highlights will include:
Fri: NZ Consumer Confidence, Japan Tokyo CPI, US Personal Consumption/Expenditure Index, Michigan Consumer Sentiment Index, Baker Hughes Oil Rig Count
Market moves, in brief:
FX: DXY 97.39 (+0.19%)
Bonds: US10Y; 0.685% (+0.06%), German 10Y; -0.502% (-6.25%), UK 10Y; 0.154% (-18.80%), Australian 10Y; 0.893% (-4.2%), NZ 10Y; 0.963% (-0.34 %), China 10Y; 2.898% (0.00%)
Stock Indices: DJI; +1.18%, S+P; +1.10%, NASDAQ; +1.10%, EUStoxx50; +0.70%, FTSE100; +0.38%, Shanghai Composite; +0.30%, ASX200: -0.10%
Metals: Gold $1764 oz (+0.13%), Silver $17.78 oz (+1.66%), Copper $2.6600 lb (+0.51%), Iron Ore $103.08 per tonne (NYMEX) (+0.01%),
Oil: WTI $39.10 pb (+2.76%)
|INDICES / COMMODITIES|
It has been a mostly choppy session on Thursday and it could be a relatively quiet end to the week for the FX markets, although any big move in stocks would create some volatility.
While the short term momentum indicators hint that we could see another squeeze higher in the stock indices, I am a bit wary of being long over the weekend in case of a major upturn in new Covid cases in the US, so prefer to be square.
In the FX major pairs, most of them look very mixed and offer little hint either way, although the Euro looks a bit heavy but is holding on above decent support above 1.1160/70. A break of this could see a run back towards1.1130, possibly 1.1100.
Otherwise there is little to suggest today so have a good weekend.
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EurUsd: 4 hour