Investors seemed to like what they heard yesterday concerning earnings and vaccines. Goldman Sachs posted excellent earnings which kept the bullish equity tone intact. Yesterday the stocks that performed the best were ones that would benefit mightily from a vaccine taking the coronavirus' negative impact on the global economy off the table. Royal Caribbean Cruises, Norwegian Cruise Line Holdings, Carnival, American Airlines Group, and United Airlines Holding were all stocks that gained at least 14% yesterday. This morning before the bell, Johnson & Johnson, Charles Schwab, Abbott Labs, and Domino’s Pizza will report their earnings, while investors will also be watching for Netflix’s second-quarter earnings report after-the-bell. Almost forgotten with all the earnings reports, initial jobless claims for the week ending July 11 are due out today and has improved to 1.3 million, from last week’s 1.31 million and much higher than the expected 1.25 million. This number has continued to fall but remains above the 1 million mark. Lately, invests have pretty much ignored the number and unless it is entirely off the mark, that probably happens again today. Retail sales for June also come out this morning and it is expected to be up 5.4% after last month’s record-breaking 17.7%. The USD is trading higher against the major currencies this morning, and DOW Futures are pointing toward a negative opening of around 100 points. Keep in mind, all the above economic news; earning, unemployment claims, and retail sales will be announced before the bell and could affect investor intentions. US Treasury yields are lower this morning, with the 10-year note trading at 0.6250% and the 30-year bond trading at 1.3212%. Concern remains regarding the increase in viral cases, especially in Texas, Florida, and California. Traders are keeping a watchful eye on how those states are handling these outbreaks. Traders seemed to have taken a pause overnight on risk-taking, which helped the USD improve. The relation between the dollar and equity markets continues. If this risk-off mode continues into the North American trading day, the USD should hold its gains and the equity markets may break their positive streak.
EUR/USD is trading lower ahead of the ECB meeting later this morning. The ECB is expected to leave rates unchanged and urge EU leaders to agree on the Euro Fund pact. Technically, momentum remains positive as the EUR is trading above the 50, 100 and 200-day MAs, and the RSI is well below 70, at 40. At their meeting today, ECB President Lagarde is expected to comment on the state of the EU economy and how recovery from the coronavirus is going. The EU summit begins on Friday and she will certainly comment about the meeting and its outcome. Negotiations between the southern countries who support the program and the “Frugal Four” led by the Netherlands, has intensified. Overall, over the last few trading days, the EUR has shown some strength, and any positive comments this morning from the ECB should keep that mood intact.
GBP/USD is trading lower this morning as the market digests the UK unemployment report. Technically, momentum has turned negative with sterling trading below the three moving averages and approaching oversold levels as the RSI is at 33. The UK unemployment rate was unchanged at 3.9% in May, beating expectations once again. The Claimant Count Change was also surprisingly lower dropping 28,000 instead of rising. The bad news is that average earning fell 0.3% year-on-year ending an era of pay raises. Speaking before Parliament, Bank of England Governor Andrew Bailey said, “interest rates will remain depressed for at least two more years.” The possibility of negative interest rates remains under review and further speculation about rates gong negative could put pressure on the pound. Expect the pound to remain pressured throughout the day.
USD/JPY is trading near overnight highs this morning as the currency pair has jumped above the moving averages. RSI is trading just below the 70 level at 64. According to the Bank of Japan’s quarterly outlook report, downside risks remain for the Japanese economy. While Japanese consumption is expected to pick up, after a slump caused by the coronavirus, consumer inflation is expected to remain depressed for the time being. If the pandemic continues for a prolonged period, this could affect the Japanese financial system, worsening the economy. In an attempt to revive the economy, the Japanese government has implemented a Go-To campaign to promote domestic tourism. It is hoped this program will support the food and beverage industry and aid in the social and economic recovery of regions in Japan. The concerns arise over containment measures which would prevent large gatherings. Anything that could get the economy moving would be welcomed. The risk-off trading mood could help USD/JPY to move higher today.
USD/CAD trading towards the top of its overnight range as markets react to yesterday’s central bank meeting. Adding to the loonie’s woes, oil prices are lower this morning. Technically, the USD/CAD is trading below the moving averages and in the middle of its RSI level at 50. At their meeting yesterday, the Bank of Canada suggested that there would be no interest rate hike before 2023. The bank did add a policy tool: forward guidance. According to the BoC statement, “the Governing Council is pledging to keep the overnight rate at its current level until the economy is back at full capacity and inflation is sustainable at the bank’s 2% target.” Governor Macklem wants Canadians to know that borrowing costs will remain low for quite some time. The effect of the virus on investment, immigration, and business closures will reduce the economy’s long-term productive capacity. Oil prices fell overnight with Brent crude futures falling $0.13 to $43.66 a barrel, and U.S. West Texas Intermediate crude falling $0.18 to $41.02 per barrel. At their meeting yesterday, OPEC+ agreed to ease supply curbs, with the hope that US demand will pick-up and be larger than expected. As the global economy slowly recovers from the viral pandemic, demand is expected to rise. As with the other currencies today, expect USD/CAD to remain bid.
The world's second-largest economy bounced back from its first-quarter contraction as China’s GDP grew by 3.2% yearly in the second one, well above the expected rise of 2.5%. The first-quarter number had been -6.8%. However, investors focused on the disappointing drop in June's retail sales, showing that the Chinese consumer is still wary of the virus. Retail sales dropped -1.8% year-on-year in June, below the expected 0.3% rise. Speaking at a daily briefing on Thursday, Chinese Foreign Ministry spokeswoman Hua Chunying responded to the questions on the US-China bilateral relations and trade deal. When asked about the effect of the US sanctions on the bilateral trade deal, she replied “we hope the deal can still be implemented.” To ease tensions, she said China would welcome US Secretary of State and invited him to visit.” It is hoped that the tension between the two superpowers could be eased.