Risk On Baby! But Earnings Loom

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Equities continue to power higher
Markets ignore COVID risk
Nikkei 2.22% Dax 1.05%
UST 10Y 0.63
Oil $39.85
Gold $1809/oz
BTCUSD $9304

Asia and the EU
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North America Open
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The equity markets completely ignored the record rise in coronavirus cases over the weekend and powered higher with Nasdaq making a fresh new high in Asian and early European trade as traders continue to bet that the global economy will adjust to the new COVID world and economic activity will pick up the pace.

Currency markets were much more muted as usual by EURUSD continued to move higher as well pushing towards 1.1350 level. Comments by French finance minister Bruno Le Maire that French consumption was just 5% below normal may have helped the single currency.

Although equities continue to push higher ignoring any and every risk in their path, this week kicks off the earnings season for stocks with financial reporting Tuesday and Wednesday and Netflix reporting Thursday. The markets will, of course, be eager to hear the forward guidance from the banks, and to that end, it will be particularly interesting to see what banking executives have to say about the strength of the consumer.

Despite the fact that we’ve seen record unemployment growth over the past few months consumer bank accounts actually swelled to record highs on the back of bonus unemployment benefits which many analysts believe have been the single greatest support for aggregate demand over the past weeks.

With the $600 bonus unemployment checks expiring at the end of July and labor demand in the high contact service sector likely to stall as cases continue to rise, the US economy may be setting itself up for yet another demand shock that the market is completely ignoring at the present time. If banking executives sound the alarm on the earnings calls that could sour sentiment quickly, but for now the buyers’ bid continues to dominate equity assets and Nasdaq could very well hit 11,000 this week if the mood persists.

Boris Schlossberg
Managing Director

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