Event Risk Leaves Markets in Corrective Mode

Weak jobless claims raises concerns

Financial markets were dominated by the increase in US Initial Jobless Claims and Secretary Pompeo’s beating of the anti-China drum overnight. US equities and energy both fell, although currency markets yet again, almost completely ignored it, with the US dollar continuing to ease lower.

Regarding the Initial Jobless Claims, the 100,000 falls to 1.4 million new claims is a concerning one, primarily as the data had been stubbornly anchored at minus 1.3 million for the past few weeks. However, the continuing claims data actually improved somewhat, and one week’s data does not make a trend. With Covid-19 rampaging across the US, risks are increasing that the recovery could stall. However, the moves lower in equities and energy overnight looks more corrective in nature. Ahead of the weekend, and having rallied strongly this week, it probably didn’t take much for investors with itchy trigger fingers to head for the exit door. Notably, tech-led the move down, having outperformed this week.

The weekend headline risk is real, and after some impressive moves higher across asset classes, some correction was overdue. The lack of progress by Washington DC on the next fiscal stimulus package, the former effectively expiring today, has probably contributed to the US dollar weakness, undermining its safe-haven status.

This afternoon, most attention will be on European and US PMI’s. All of them are expected to show continuing signs of improvement. We expect Europe to continue outperforming, riding the afterglow of the EU pandemic recovery package passed this week. The most significant risk to the overall bullish thesis would be an unimpressive set of PMI data from the US. After the weak jobless data overnight, that would likely add to the nervous gloom as the week concludes.

Singapore’s industrial production data will be of passing interest to Asia on a quiet data day. Industrial production is likely to show a strong bounce for June as Singapore emerged from its circuit-breaker lockdown. In the bigger picture, though, the data series is volatile at the best of times and will be of interest to the local market only.

On Monday morning, China releases its June Industrial Profits YTD, where we are expecting an improving, but still negative number of -17.0% YoY, better than last month’s -19.0% print. Asia’s highlight next week will be China’s Manufacturing and Services PMI’s released on Friday.

With Japan on holiday today, activity in Asia will be somewhat muted. We expect the correction lower in equities and the US dollar to continue as risk is taken off the table ahead of the weekend.

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