Risk Wobbles on Geo-Tensions; Will US Consumer Spend?

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US tensions with China and the EU weigh on risk
ECB on tap
Nikkei -0.76% Dax -0.84%
UST 10Y 0.63
Oil $40
Gold $1805/oz
BTCUSD $9109

Asia and the EU
No data

North America Open
EUR ECB 8:30 Presser
USD Retail Sales 5% vs. 11%

Markets were wobbly in Asian and early European trade plagued by growing US-China tensions as well as new conflicts between the US and EU.

The diplomatic sniping between China and the US continued with the US threatening to cut off visa access to any CCP member over the new Hong Kong security law and China vowing retaliation in kind.

In EU the European court ruled that data of E.U. residents is not sufficiently protected from government surveillance when it is transferred to the United States throwing a big barrier to transatlantic digital commerce trade. It is not clear how much of an impact this will have on US firms who may have to opt for storing EU customer data on European servers. But the news was enough of a negative shock to push Nasdaq lower by more than 1.5% as it dropped towards the 10,500 level.

On the economic front, the market will get to hear from the ECB today although little fresh news is expected. Most of the countries in the region have returned to normal functioning conditions after months of lockdowns from COVID but the pick in economic activity has been slow and the only surprise that could occur at the meeting would be some forward guidance by Madame Legarde that the central bank was willing to increase its PEPP program to ease conditions further.

For EURUSD the bigger factor may be the EC commission meeting later this week on the 750E stimulus package which still remains in negotiation. The direct transfer of funds to the most affected EU members would be a much bigger stimulus catalyst than any additional buying by the ECB as the region is already deep in negative interest rate territory.

In the US the market will also get a look at weekly unemployment data and the US Retail Sales numbers which are expected to rise but a more modest pace than the month prior. The key question for the market will be if the US consumer mobility and spending data have slowed in the face of fresh COVID infection even as many states have loosened the lockdown provisions over the past month. If the US consumer is voluntarily curbing his economic activity in response to new threat of infection the downward bias in risk flows could accelerate as the day proceeds.

Boris Schlossberg
Managing Director

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