Today’s podcast

Overview: Slip slidin’ away

• USD starts the week as it left off last – under the pump
• Technology stocks lead US equity rebound – it might just be a ‘dollar thing’
• Republican fiscal plan still awaited – $600 unemployment benefit down to $200?
• Better than expected IFO survey adds to EUR tailwinds
• Weekly employment data today, US Consumer Confidence tonight

FX markets remain very much the focus at the start of a new week just as they were at the end of last, with distaste for the USD supporting every G10 currency bar the Swiss  Franc (unchanged) and the a 0.8% gain for EUR/USD only exceeded by the Swedish Krone (+1.1%).  In index terms, Bloomberg’s BBDXY index is 1% lower coming into the New York close and the more EUR-centric DXY 0.8% lower. The BBDXY index yesterday fell into negative year-on-year territory for the first time in 2020 and to its lowest since late September 2018.  DXY is showing scant respect for what we thought last week might be the next important support area around 94.0 (currently 93.7). AUD/USD has made a high of 0.7150 so shy of last Wednesday’s 0.7182 high and NZD 0.6693,its best level since 31 December 2019.

US equity market have performed well led by the NASDAQ (+1.7%) though the latter is still about 1.5% below the record closing high posted last Wednesday. The S&P has finished in NY +0.74% and the Dow 0.43%. It tempting to suggest buying of the technology behemoths is because of a reluctance to be short ahead of this earnings report (Apple, Amazon and Alphabet all report later this week) though we rather think this also has something to do with the weakness of the US dollar (ditto the gains for the S&P) bearing in mind that more than 40% of S&P 500 company earnings come from outside the United States.

In bond markets

Higher US Treasury yields have followed relatively poor 2 and 5-year note auctions that while both selling at record low yields for what were record sized auctions, did so at higher yields relative to the 1pm pre-action when-issued levels. The two-year auction also received the lowest level of foreign participation in a year, as was the overall bid/cover ratio for the 5-year offering. Core Eurozone (and UK gilt) yields were also higher, but only by 0.5bp or so versus 2bps for US 10-year Treasuries. Peripheral Eurozone bonds continue to outperform post last week’s EU recovery fund deal, 10-year Italian BTPs and Spanish Bonos both up by less than 0.1bp.

News flow has been relatively light, with in particular no formal announcement as yet of the Republican fiscal support plan that was promised for Monday (it is said to be imminent). Media reports at the weekend were that this was likely to be in the order of $1.5tn and the unemployment benefits under the Pandemic Unemployment Assurance plan (a firm of JobKeeper) should be scaled back to no more than 70% of pre-pandemic earrings. But before that, there is a suggestion that a stop-gap measure ahead of this Friday’s expiry of the current $600 weekly payments could be limited to $200. Bearing in mid some 30 million Americans are currently receiving the $600payment, that would be a big hit to household income come this weekend if it is indeed what transpires.

Economic data has been headlined by a strong German IFO survey, the rise in the headline index to 90.5 from 86.3 ((89.3 expected) driven by a jump in the expectations component to 97.0 from 91.6. US Durable Goods Orders rose by a slightly bigger than expected 7.3% (market consensus  6.9%) with the core ‘non-defence ex-aircraft’ series +3.3% a little below the 3.6% expected.  The Dallas Fed’s July manufacturing activity reading came in at -3 from -6.1, a bit above the -4.8 expected.

Coming up

• Locally, we have the weekly ABS payroll estimate for the week of July 11, so should pick up the very early stages of the Victoria lockdown. Last week’s weekly household survey suggested those with jobs fell from 64.6% to 63.5% of the workforce and is a poor omen for the overall number of jobs gained/lost in July, so today’s number will be of interest. Also weekly consumer confidence.
• Offshore this evening, the main interest outside of any US fiscal policy developments is the Conference Board consumer confidence reading (seen dropping o 94.4 from 98.1 in June) and the Richmond Fed Manufacturing index (see improving to 5 from 0)

Market prices

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