In our Investment Bank Outlook each week, we bring you a selection of perspectives from leading investment banks to outline the key issues and directional views for the week ahead. These excerpts, taken from research notes, will cover issues such as key market themes, economic releases, as well as any major trends and levels to watch. Please note, this material, which does not reflect the opinions of Tickmill, is provided for educational purposes only and should not be taken as an investment recommendation.
RBC Capital Markets
Week ahead: US June payrolls top the data agenda (Thursday). RBC economists are well ahead of the consensus expectation (+8mn vs +3mn), though we note again the very wide range of estimates (standard deviation 1.6mn). State continuing jobless claims are down about 5mn from their early May highs and the daily Homebase data suggests more than a 50% retracement in the level of job losses from the lows. While total continuing jobless claims are down only slightly, the stickiness here comes from the pandemic unemployment assistance program. Outside the US, Canada’s April GDP data will show a large fall (CAD). The UK and Eurozone are relatively quiet this week, with just CPI data due in the latter. The Riksbank announces rates (Wednesday).
Month‐end: US equities are down 1.2% month‐to‐date and our month‐end equity hedging signals look like being selectively long USD.
AUD: The RBA’s Deputy Governor will tonight deliver a speech titled “The Reserve Bank’s policy actions and balance sheet.” He will step through the RBA’s policy actions around bond purchases, YCC, and liquidity provision through the current crisis, and markets will be on high alert for any hints as to how the RBA sees its balance sheet developing from here.
We note that surplus ES balances have already begun to wind down substantially from April’s peaks.
GBP: Technically, tomorrow is the deadline for the UK to request an extension to the transition period beyond December 31. At the weekend. PM Johnson committed to ramp up infrastructure spending, though it is not clear this goes beyond commitments already made.
SEK: The Riksbank has shown great reluctance to go back to negative rates and is duly expected to remain at zero this week (Wednesday). Attention will focus on revisions to the Bank’s forward guidance.
EUR: Today’s German CPI should be clear from the regional releases by the time the data are released and may shift expectations for tomorrow’s Eurozone data.
CAD: An unprecedented contraction in GDP in the first month of Q2 is inevitable (tomorrow), but the magnitude is less clear. Weaker sales reports than anticipated across manufacturing, wholesale, and retail sectors leave us penciling in a 13.5% m/m decline.
COP: Ministry of Finance released on Friday the medium term fiscal plan where they estimate a fiscal deficit of 8.2% this year with a GDP contraction of 5.5% and debt/GDP of 65%. In order to achieve the convergence to the fiscal rule in 2022 the government will required a new Fiscal reform for 2% of GDP. The door is open for additional downgrades by rating agencies by year end. In terms of FX at least for this year COP should remain well anchored in a range between 3600/3850 as automatic stabilizers will reduced the need for corporates to buy USDCOP and the extraordinary government funding needs will continue offer dollars – however, this could be a very different story next year.
Markets were pressured into Friday’s NY close and that pressure continued around the Asia open. However, sentiment recovered over the course of the Asia morning seeing S&P futures trade in the green before fading to current levels now (flat vs Friday’s close at 3007). In FX, the picture is more constructive for risk. The USD is offered with GBP, AUD and EUR outperforming in G10. EM FX sees a solid performance over the course of the Asia morning for most currencies too. Despite risky FX performing, CitiFX Strategy has turned tactically bearish on risk assets citing rising virus cases and hospitalisations in the US, with reopening optimism reversing as states deploy new containment measures.
Data today is unlikely to move the needle but watch central bank speak. EUR awaits consumer confidence and ECB speak, while GBP will focus most on speeches by Governor Bailey and Vlieghe. In the USD, housing data and speeches from Daly and Williams will be most in focus. Over in EM, ZAR awaits the SARB annual report (up till March 2020) while BRL awaits the government’s primary fiscal result.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
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