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Beautiful economic data support stock market commodity currencies generally rise new crown cases soar again the US dollar still has safe-haven buying.
Jul 4,2020 16:31CST
Source:Huitong network
The content below was translated by Tencent automatically for reference.

SMM News: just over the past week, the global economic data was relatively optimistic, which once boosted the market's optimistic expectations of the global economic recovery. Global stock markets generally gained momentum, with A shares reaching a one-and-a-half-year high, providing a strong upward momentum for commodity currencies such as the Australian dollar. Optimism about the Anglo-European trade agreement increased, and the pound bottomed out this week. However, the daily number of new crown pneumonia cases in the United States has exceeded 50, 000 and reached record highs, making the market worried and risk aversion still provides support for the dollar.

The Australian dollar rose 1.09 per cent against the US dollar this week, the New Zealand dollar rose 1.68 per cent against the US dollar, and the US dollar fell 1.03 per cent against the Canadian dollar; the pound rose 1.19 per cent against the US dollar; and the dollar index fell slightly this week.

Commodity currencies are optimistic this week

This week's China June PMI data, US June home sales, US manufacturing PMI and non-farm payrolls report all improved, boosting confidence in the global economic recovery, helping most global stock markets rise and providing upward momentum to commodity currencies such as the Australian dollar and the New Zealand dollar, with the New Zealand dollar performing most optimistically, at one point hitting a three-week high of 0.6539 to close at 0.6531. However, the new crown epidemic still makes the bulls have scruples.

Specific figures show that the official Chinese PMI data for June was 50.4 higher than the median estimate of the agency survey, a three-month high. China's Caixin manufacturing PMI in June was 51.2, well ahead of expectations of 50.5, up 0.5 percent from the previous month, the highest since December 2019, and the second consecutive month of expansion. China's Caixin service PMI rose to 58.4 in June and is expected to be 53.2, compared with a previous value of 55, the highest since May 2010.

PMI in both manufacturing and services rebounded, driving Caixin's composite output index to 55.7 in June from 54.5 in May, the highest since December 2010, indicating that China's total economic activity is accelerating and growing significantly.

China brought the epidemic under control as early as March and started the economy ahead of other economies, and its manufacturing and other economic activities are now recovering, and the June PMI is further evidence of China's steady recovery, the Associated Press reported.

The US manufacturing sector showed a marked improvement in June. The US ISM manufacturing PMI recorded 52.6 in June, far exceeding the forecast of 49.5 and the previous value of 43.1. after the US manufacturing activity broke away from the 11-year low and showed obvious signs of stabilizing in May, the ISM manufacturing PMI broke through the line of rise and decline in June and rose to a 14-month high. All items showed record increases, with the orders index surging 24.6 points, the biggest increase since records began in 1948, the production index the biggest monthly increase since 1952, and the employment index the biggest increase since April 1961. The export index has also improved, but it still shows weak demand from overseas customers. The rebound in PMI indicates that the US economy has improved after entering a recession in February, indicating that the worst is over and that manufacturing is beginning to stabilise.

Non-farm payrolls in the United States rose by 4.8 million in June, the biggest increase since the government began recording data in 1939. The unemployment rate fell to 11.1% in June from 13.3% in May.

On the stock market, the shanghai index rose 5.82% this week to close at 3152.81, its highest level since its low in April 2019. The s & p 500 is up 4.02% this week, and the NASDAQ is up 4.62% this week, and hit a record high on Thursday. The European Stoxx 600 index is up 1.80% this week; all this provides support for commodity currencies.

The New Zealand dollar closed at 0.6531 against the US dollar this week, up 1.68% from the weekly level. The New Zealand dollar rose 4% against the dollar in June and 8% in the second quarter, but analysts seemed skeptical about further gains, with forecasts for both six and 12 months later at 0.6500. This is partly because New Zealand may not be happy to see its currency continue to appreciate, but is doing its best to protect the domestic economy. The Fed of New Zealand has repeatedly indicated that it will impose negative interest rates if the economy does not recover as expected, and even hinted that it may buy foreign assets to curb the rise of the New Zealand dollar, and investors need to be vigilant.

This week, the Australian dollar closed at 0.6940 against the US dollar on the five-day line, up 1.09 per cent on the weekly line. The recent stunning gains in the Australian dollar and the New Zealand dollar have prompted analysts to comprehensively revise their forecasts to catch up, raising the median forecast for the Australian dollar against the US dollar by US $0.04, rising to US $0.6800 one month and three months later, and rising to 0.7000 and 0.7200 six months and a year later, respectively.

Strong export earnings have turned Australia's multi-year current account deficit into a surplus for the first time since the 1970s, providing a fundamental driver for the Australian dollar. Compared with many countries, Australia has also been more effective in curbing the new crown epidemic, allowing the domestic economy to restart much earlier than initially feared.

"the global recovery, Australia's good handling of the crisis compared with the rest of the world, and its trade links with China suggest that the Australian dollar may approach US $0.76," said Janu Chan, a senior analyst at St. George Bank. "We have revised our year-end forecast to 0.7200 and our forecast for the end of 2021 is 0.7600."

Bullish sentiment surged on the back of optimism about the UK-EU trade deal

The pound briefly fell to 1.2252, a June low, as investors worried about how the UK government would raise money for its proposed major infrastructure projects and the UK's final GDP in the first quarter was further revised down, but it turned from a fall to a rally as the dollar fell and optimism about Brexit talks heightened, reaching as high as 1.2530 to close at 1.2483, up 1.19 per cent.

British Prime Minister Johnson announced a new spending plan on Tuesday to revive the economy, but analysts said the rise in sterling was not because of Johnson's announced plan, as the planned spending was limited and largely in line with expectations. 'We think the UK market will catch up and the political and monetary risks in the UK are "over-digested by the market," said Mark Haefele, chief investment officer of global wealth management at UBS. It is widely believed that British assets are undervalued. In particular, we believe that sterling is the most obvious beneficiary of dollar weakness, and we expect the dollar to fall as safe-haven flows reverse and political uncertainty increases ahead of the November election.

A week of talks between the UK and the EU ended with what investors thought was an optimistic tone and are expected to resume next week. This helped the pound to record its first weekly gain in four weeks.

Barnier (Michel Barnier), the EU's chief representative for Brexit negotiations, said on Thursday that there were still serious differences between the two sides after discussing future relations with the UK this week. At the same time, he said in a statement that the EU continues to believe that an agreement is still possible and in the interests of all parties, but that its main demands for economic partnership have not changed.

"before the start of a new round of negotiations next week, the two sides are rumored to have softened their positions on some issues and taken several steps towards an overall compromise," the (ING) strategist team said.

The survey shows that if the UK and the EU reach a future trade relationship agreement, as most analysts expect, the pound will rise by the end of the year. But analysts also said that London and Brussels were still far apart in the negotiations and that there was still a risk that an agreement could not be reached by the end of 2020.

The pound is expected to be at its current level in a month and three months, according to a survey of nearly 60 foreign exchange analysts from June 25 to July 1. Then by the end of December, the pound will move forward to $1.27, when the Brexit transition period will be over. In a year's time, the pound will appreciate by about 4% from its current level to $1.29. 'our main scenario is that some form of Brexit agreement will be reached, or we will continue to postpone it, 'said Simona Gambarini of Capital Macro. From this point of view, we think the pound will appreciate, but in view of recent developments, our estimate of risk is downside.

Economic data optimistic VS US epidemic worsens, US Dollar struggles this week

The dollar struggled this week between the improvement in global economic data and the deterioration of the new crown epidemic in the United States. Economic data in several countries improved, dampening the safe-haven demand for the dollar. At one point, the dollar fell to 96.80, but the epidemic situation in the United States took a sharp turn for the worse. On Thursday, the number of new crown cases increased by nearly 55000, the largest one-day increase in the world. Many states in the United States had to suspend or withdraw their economic restart plans. Some investors were reluctant to take excessive risks and safe-haven funds flowed back into the dollar, helping the dollar recover above the 97 mark to close near 97.15.

The dollar fell nearly 1.0 per cent in June, its worst monthly performance since December. The survey shows that the dollar may be at a critical crossroads, with more currency strategists turning bearish on the dollar and are expected to remain trading near current levels in six months' time, fluctuating slightly up and down within a certain range.

Positive data on US home sales and Chinese manufacturing released earlier this week left traders struggling with optimism about a rebound in global economic growth and fears that a surge in new crown cases could endanger a V-shaped recovery. But risk aversion is gaining the upper hand as it is reported that the number of new crown cases in the United States has soared. According to statistics, the United States added nearly 55000 new crown cases on Thursday, the largest one-day increase in the world. Florida alone reported more than 10, 000 new cases, the largest one-day increase in the state since the pandemic. A new wave of new crown outbreaks has caused several states in the United States to suspend or withdraw their economic restart plans. Data released on Thursday showed that the US added more non-farm jobs in June than expected, but the foreign exchange market reacted little, fearing that the worsening epidemic could once again put the brakes on economic activity. "the number of new infections in the US has been climbing since June and the market is more inclined to buy the dollar, especially against emerging market currencies, because the dollar is seen as the safest asset," said Junichi Is hikawa, a senior foreign exchange strategist at IG Securities. However, surveys of exchange rate forecasters show that the dollar's dominance will gradually disappear in the coming year due to weak global demand and a bleak outlook for the US economy. More than 70 analysts surveyed from June 25 to July 1 expected the dollar to be weak as Federal Reserve Chairman Colin Powell reiterated that the economic outlook was uncertain; these respondents assumed that there was no second wave of epidemic shocks.

53 of the 66 analysts surveyed, or about 80 per cent, said the dollar could still trade near current levels in six months' time, fluctuating slightly up and down within a certain range. This suggests that the dollar may be at a critical crossroads as more currency strategists become bearish. Traders are also seeking a balance between expectations of an economic recovery and a rise in the number of new crowns, especially as new crown cases soar in most states in the United States.

"We are surprised by the emerging consensus that the recovery is much faster than expected, so there is reason to support risky assets," Michalis Rousakis and Rohit Garg, foreign exchange strategists at Bank of America, said in a report. What we see in the latest data is the base effect because the economy is being unsealed. We expect global output to soon stabilize at well below pre-crisis levels. This is not a V-shaped recovery. " Antje Praefcke, an exchange rate analyst at Commerzbank, wrote in a note to clients, "the possibility of heightening risk aversion in the next few days will increase due to negative news, and the dollar will strengthen as a result, rather than a further rise in optimism. At present, it seems that the possibility of the euro falling against the dollar is still weak.

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