Key Points From This Week
Second Wave Fears Intensify
The prospect of a second wave has taken on greater focus this week as an increasing number of countries report an uptick in new covid-19 cases. In response to a fresh outbreak in Spain, many European countries have enacted fresh travel restrictions on the country. The hope of a return to broad travel in Europe this summer is now fading quickly and already we are seeing some airliners cancelling all travel to Spain. In the UK, the PM has warned that a second wave is potentially only two weeks away, leading to fears of fresh lockdowns there.
Fed Holds Rates Steady
At the July FOMC meeting this week the Fed held rates unchanged, noting that there had been an improvement in underlying economic conditions. Despite the ongoing recovery, however, the Fed warned that the economy is still well below pre-virus levels and warned that the pandemic is creating a great deal of uncertainty in the outlook. The Fed reassured investors that it will take further measures as necessary to support the economy as the recovery continues.
Oil Inventories See Large Decline
The EIA this week reported the largest oil inventories decline of the year with a drop of more than 10 million barrels. This latest data has helped bolster the view that the US recovery is starting to gather momentum. Crude prices have been stagnant over recent weeks as markets await news on the OPEC production cuts which are due to expire at the end of this month There has been speculation that the oil cartel and other non-OPEC nations will look to extend the cuts, given the current demand concerns linked to second wave fears.
Key Events Next Week
RBA August Meeting
The RBA meeting next week has taken on greater focus amidst the spiralling second wave of the virus there. The government has placed certain areas, including the country’s largest city, Melbourne, back into lockdown as infection rates there hit new daily highs, with the death toll creeping up also. While the RBA is not expected to ease further at this stage, the meeting is likely to come with warnings over the growing uncertainty in the outlook, leading to downside pressure in AUD.
BOE August Meeting
The BOE August meeting next week is not expected to see fresh easing though the BOE is likely to reassure markets that it stands ready to act further if necessary. Of note will be whether the BOE cites the risks around ongoing Brexit trade talks and the likelihood of the UK leaving the EU without a deal at the end of the year. Johnson has warned that the UK could leave talks as early as the end of the month if a deal outline is not agreed.
The US labour reports next week will be the headline event of the week. The NFPs have seen two consecutive record breaking results over the last two months and traders will now be looking to see whether this trend continues or if momentum has been lost over the last month. If there is any disappointment in the release, USD is likely to come under further selling pressure.
Keep An Eye On
Second Wave Headlines
The UK is considering putting further European countries on the no-fly list, such as Germany and France. If such actions are taken, the implications for the global economy would be severe and risk markets would likely be taken lower.
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