City of London at twilight

Mid-Week Themes – Stats, Brexit, COVID-19 and Stimulus Keep the Markets Busy

It is not only the end of the month but also the end of the quarter this week.

What are the top highlights for our today’s discussion?

We’ve got to be looking at the markets that are constantly battling. There is the constant support from the likes of the FED that’s propping up the equity markets.

The U.S equity markets saw their best quarter since 1987 and the EU markets their best since 2015. Quite remarkable when you consider the current economic environment.

While governments and central banks continue to deliver support, there is a COVID-19 reality, however. The upward trend in new COVID-19 cases has persisted, leading to the pause in reopening in the U.S.

There’s good news for the EU, however, which is removing the ban on non-essential travel today. COVID-19 numbers out of the EU have also been relatively stable in spite of reopening. So, the European equity markets should be playing catch-up and outgunning the U.S majors.

For the U.S, COVID-19 remains a major economic hindrance, as the EU continues to reopen and recover from the meltdown.

An overdoing of the stimulus could cause uncontrolled inflation and government debt not seen before.

Meanwhile, what about macroeconomic data releases?

For the EU, you’ve got service sector PMI numbers due out on Friday and today’s Germany unemployment and retail sales figures. These are key.

From the U.S, we saw consumer confidence jump in June according to figures released on Tuesday.

On Thursday, nonfarm payrolls and weekly jobless claims are in focus. There must be an improvement in labor market conditions to support the view of this economic recovery.

If NFP numbers disappoint, then the markets really need to reconsider what lies ahead. ADP nonfarm employment change figures from Wednesday will give the markets a taste of what’s to come.

The FED will continue to throw money into the markets. Such moves are unsustainable, however, if labor market conditions deteriorate further.

Next week, we then have the ISM non-manufacturing PMI out of the U.S. It’s all about service sector activity. Labor market conditions need to improve, which drives consumption, which in turn drives the services sector. We should then see a pickup in the manufacturing sector activity.

The last NFP release caused a more than 50 pip move on the EUR/USD. Three months before that it was in the range from 25 to 30 pips.

What about geopolitics?

You’ve still got Brexit. There’s been some recent debate on whether it would actually be better for Britain to leave without a deal.

One thing is certain, Boris Johnson is not going to buckle to any demands from the EU. The Tory Party is majority pro-Brexit, so there’s going to be no compromises when it comes to negotiations.

Let’s not forget a no-deal outcome could be better for the British people and the economy and not a negative.

The Pound has held fairly steady when you consider the fact that the chances of a hard Brexit rise by the day.

Elsewhere, trade wars… The U.S is threatening tariffs on the EU and then there’s the U.S and China.

These are all simmering in the background and could prop up at any time when you consider Trump languishing in the polls behind Biden.

It really has been one mistake after the other for Trump. The U.S President is going to need plenty of distraction tactics and spin to have a chance of a 2nd term.