Midday Analysis – 7th July 2020

Today’s Market Outlook

During today’s Asia-Pacific session, the overall risk tone was indecisive but leant more risk-off with a mixed performance from indices, lower yields and higher volatility. A similar picture was observed in FX price action with USD trading the strongest, while JPY the weakest one out of the majors.  

At their July meeting, the RBA failed to surprise markets with the central bank leaving policy unchanged with the Cash Rate at 0.25% and the 3yr yield target at 0.25%. Instead, AUD’s weakness is being attributed at Australia’s announcement that the country’s second most populous state, Victoria, is re-imposing stay-at home restrictions in metropolitan Melbourne and one regional area of the state after a record rise in coronavirus cases. Overnight, Victoria reported 191 new coronavirus cases.  

In today’s remaining trading session, there aren’t any significant major scheduled events apart from a few FED speakers (Bostic, Quarles, Daly and Barkin) but as usual, make sure to keep the following key macro themes in mind as well:  

  1. Second Wave Virus fears – So far, the markets have largely discounted the tremendous rise in virus cases in the US, and also largely discounted the additional lockdown restrictions. It’s important to always keep in mind that the market tends to have an inclination to positivism, so always keep that in mind when navigating risk flows, especially during very uncertain times. 
  1. US-China tensions – The Hong Kong legislation has seen push back from various countries including the US, Canada, EU, UK and Australia, so any further escalations or retaliatory measures need to be kept in mind as it can affect overall risk sentiment.  
  1. EU Recovery Fund – This week we will see a revised or compromise proposal from the European Commission, so we need to keep this in mind for the Euro as well as ongoing risk sentiment.  
  1. Brexit – any significant developments regarding Brexit will be a very important mover for the Pound so keep that in mind. 

Today’s High Impact Events

The times below are GMT+3

07.30 – Australia RBA Rate Decision (Post)

Australia’s interest rates remained on hold at the record-low level of 0.25 per cent as the nation works to claw its way back from the economic damage caused by COVID-19. The Reserve Bank of Australia (RBA) today said it would not slash rates further as more sectors of the country re-open for trade. 

Coronavirus Status Update 

US COVID-19 cases rose by 44,361 (Prev. +43,003) and death toll increased by 235 (Prev. +212), while AFP later tweeted that the US passed another grim milestone as the number of coronavirus deaths surpassed 130,000 citing the Johns Hopkins University. (Newswires/Twitter) 

California COVID-19 cases rose by 4.4% or 11,529 cases (Prev. +5,410) and Texas coronavirus cases increased by at least 8,323 to a total of 209,464 on Monday which was a record increase amid counties reporting a weekend backlog. Furthermore, New York COVID-19 cases rose by 518 (Prev. +533) and New Jersey COVID-19 transmission rate was at 1.03 which was the highest in 10 weeks. (Newswires).

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