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Last week’s news

• With less than a week to go before the EU summit, European leaders are facing a potential roadblock, the Netherlands and Mark Rutte. The Dutch Prime Minister is still not convinced on the economic package details, joining other nations such as Austria, Sweden and Denmark, who all want Brussel’s proposals to be amended so loans eventually have to be paid back, replacing ‘free money’. Their move illustrates a big divide within the EU as southern members such as Spain, Portugal and Italy have all suffered heavily since the coronavirus pandemic whilst less affected nations do not want to be responsible for the collective debt that has built up.
• The pace of US applications for unemployment benefits slowly retreated again last week, with new claims totalling 1.31m as US businesses continue to grapple with the fallout from the spread of coronavirus. It was the 14th consecutive week that first-time claims have fallen since hitting a peak of 6.9m in late March, nonetheless the number of Americans actively collecting unemployment cheques remains around 18m, reflecting how layoffs continue despite a recent increase in activity in the jobs market. The number of virus cases continues to increase to new records.
• June ISM non-manufacturing, a leading indicator of economic health, was stronger than expected following two consecutive months of contraction. However, the US dollar has continued to weaken moderately against other major currencies. The US dollar index fell 0.54% and the Bloomberg US dollar index decreased 0.33% as risk assets continued to climb, despite the worsening COVID-19 news headlines over the last week. Moderna Therapeutics announced progress in its vaccine development and equity markets bounced up; the company said it is on track to deliver 1 billion doses for the beginning of 2021.
• Brussels ramped up the pressure on Brexit negotiations by issuing warnings on UK citizens that they would face ‘thorough checks’ at EU borders and the loss of rights such as free movement of pets and automatic recognition of driving licenses. Brussels also underlined that it would not mirror the UK’s, telling businesses to prepare for a full suite of checks and inevitable disruptions.

Looking ahead

• The Institute for Fiscal Studies, Britain’s leading public finance research body, has warned of a ‘reckoning’ ahead for the UK. The IFS said taxes would have to rise somewhere in order to fund the longer-term effects of borrowing around £350bn this year, which is roughly 18% of the UK’s national income. IFS Director Paul Johnson added that the UK’s furlough scheme is one of the most generous seen around the globe and therefore the ramifications of paying this back will be longer.
• Wednesday July 15th will be a key day for crude oil and probably for the Canadian dollar and Norwegian Krone. The Joint Ministerial Monitoring Committee (JMMC) will evaluate OPEC’s progress and it will decide whether to continue its production cutback of 9.6m barrels a day for another month or bring back some production as originally planned. If crude oil supply comes back to the market and there is a second wave of COVID-19, crude oil prices will be again vulnerable, along with global stock markets and commodity currencies.
• The Euro currency will be in the spotlight this week, ahead of Thursday’s European Central Bank decision. There will also be a meeting of 27 EU leaders in Brussels this Friday to negotiate the details around the economic stimulus package, which has pumped huge sums of money into the EU economies to get workers through the pandemic. Enough catalysts to keep Euro investors on their toes.
• Former Vice President and presidential candidate Joe Biden released a plan for US manufacturing as part of a four-part series called Build Back Better, which will address economic recovery, infrastructure, clean energy, racial equity, and modernization of health care, childcare, and elder care. Biden’s plan would involve spending $300 billion on R&D, even more than the amount now being considered in Congress.

Key market events this week

• GBP UK GDP 3-month average & YoY (May) – Tuesday
• EUR ZEW Economic Sentiment Index (Jul) – Tuesday
• USD Core Inflation Rate YoY (Jun) – Tuesday
• Bank of Japan Interest Rate Decision – Wednesday
• GBP UK Core Inflation Rate (Jun) – Wednesday
• Bank of Canada Interest Rate Decision – Wednesday
• NZD Inflation Rate YoY (Q2) – Wednesday
• AUD Employment Change & Unemployment Rate (Jun) – Thursday
• CNH GDP Growth Rate YoY (Q2) – Thursday
• GBP UK Unemployment Change (Apr) – Thursday
• European Central Bank Interest Rate Decision & Press Conference – Thursday
• US Retails Sales MoM (Jun) – Thursday
• EUR Core Inflation Rate YoY Final (Jun) – Friday
• USD University of Michigan Sentiment & Consumer Confidence (Jul) – Friday