Daily Market Pulse

Investors remain cautious amid strong earnings reports and Covid woes


The U.S. dollar index, a benchmarking tool to assess the performance of the greenback against a basket of six major currencies, extended 0.31% losses amid restoring market sentiment boosted by earning reports in the early hours of yesterday's trading session. However, the pressure on the greenback eased by the end of the session as coronavirus woes continued to weigh on the market sentiment, erasing early losses and closing relatively unchanged (+0.03%). Equity markets sustained gains from previous sessions, boosted by earning reports released on the technology sector. Data-wise, continuing jobless claims failed to impress, recording 3.23 million vs 3.1 million previously anticipated, while existing home sales also missed expectations, posting 5.86 million new homes vs 5.9 million previously anticipated. Coming up, preliminary PMI figures in the U.S. will provide useful insight for market participants to assess the economic activity in the country. 


The EUR retraced 0.18% against the USD amid dovish comments from Christine Lagarde, President of the European Central Bank (ECB). The ECB had its first monetary policy meeting and interest rate decision implementing the new approach to inflation. In their monetary policy statement, the ECB announced that the governing council expects interest rates to remain at current levels until policymakers see inflation reaching the 2% mark. Policymakers expect inflation to hit the target during the second year of its three-year policy horizon, and sustain levels until the end of the term. Policymakers insist on extending the dovish approach towards core inflation, allowing it to temporarily spike in order to incentivize higher inflation in the European Union. Market participants expect European and German PMIs to confirm the dovish view from President Lagarde, which, in case of releasing data, could raise doubts over the ECB performance as Germany backs tapering which may restrict an appreciation of the common currency against the greenback. 


The British Pound closed 0.45% higher against the greenback due to a risk-on sentiment in global markets. Coronavirus woes have also contributed to the figures as while the country has reported a drop in daily infection cases, there was a significant weekly jump in virus-led deaths. On the Brexit front, the European Union rejected a 28-page paper proposing to adjust the Northern Ireland protocol, arguing that the current agreement provides “flexible, practical solutions” and thus they will not agree to a renegotiation of the protocol. On the other hand, British authorities reported that COVID daily cases remain below the 50k mark registered last week, although the death toll jumped 50% from last week, adding to 73 daily deaths which have dampened the market mood. Today, U.K. Retail sales released strong yearly performance posting 9.7% vs 9.6% previously anticipated, while preliminary Manufacturing and Services PMIs failed to impress, releasing 60.4 and 57.7 respectively vs 62.5 and 62 previously anticipated. 


The Japanese Yen advanced 0.11% against the dollar ahead of the Olympic games opening ceremony which will keep banks closed for today's session. Market participants may witness dry liquidity on any JPY crossings, and we would expect that drivers around the virus outburst could induce impetus and volatility into the session. Tokyo authorities announced the inauguration will hold no fans, but just a handful of VIPs as well as small parties of socially distanced athletes, amid the recent spike in cases ahead of the games. Additionally, authorities are also expecting protests outside the stadium as celebrating the games was a very polemic topic for Japanese nationals, with polls suggesting that the vast majority of Tokyo residents would have preferred not celebrating the Olympics due to the pandemic. 


The Loonie stepped back 0.15% against the greenback as market participants remain cautious amid crude oil prices and BoC sentiment supporting the CAD and Covid woes. The West Texas Intermediate (WTI) sustained previous gains which erased the significant correction we witnessed at the beginning of the week, closing the session 1.9% higher at USD 71.57 per barrel. Additionally, Preliminary PMIs suggested that manufacturing sales increased 1.9% in June, which aligns with the recent comments from policymakers that are looking to tighten monetary policy in the second half of 2022. Coming up, the market will eye Candian Retails Sales report which could provide further fundamentals for investors to price monetary policy tightening by the end of 2022.     


The Mexican Peso posted a 0.17% gain amid global risk sentiment restoration, driven by strong technology sector earning performance and crude oil prices edging higher. A report presented by the Mexican branch of the World Resources Institute (WRI) concluded that the current model of urban expansion is financially unsustainable, estimating that cities would have to increase their income between 48% and 244% to meet the increased costs of delivering quality public services to expanded areas. Given the limitations of expanding the capital periphery, the WRI suggests that urban planning should focus on constructing new homes closer to places of work. 


The onshore Yuan remained relatively unchanged, with a marginal correction of 0.05% against the dollar. Following the devastating floods in the Henan region, market participants maintain the Chinese growth forecast unchanged, projecting 6.8% and 5.6% for Q3 and Q4 respectively with an aggregate annual growth rate of 9.1% by December 2021. However, analysts flagged that the pressure could affect food price inflation, given the importance of the Henan region for the nation’s crop harvest. Additionally, the People’s Bank of China (PBoC) is closely monitoring the risk from Fed policy changes as Wang Chunying, spokesperson for the State Administration of Foreign Exchange, said that China is preparing for the worst-case scenario brought by the Fed’s policy changes.


The Brazilian Real retraced 0.38% against the dollar despite the sustained positive mood driven by global equity markets. However, Brazil’s tax authority reported an increase of 46.77% in collected taxes since last year, recording the highest figures since the year 2000. Lawmakers noted that the federal tax take has increased evenly across different sectors, showing evidence of the solid and sustainable economic recovery of the country. 


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