Markets Look Past Data

Posted on

PMIs show lack of activity
Euro hits 2-week lows
Nikkei closed% Dax -0.15%
UST 10Y 0.67%
Oil $27/bbl
Gold $1701/oz
BTCUSD $9039

Asia and the EU
EUR Composite PMI 11.1
EUR Retail Sales -11.2%

North America Open
USD ADP 8:15

It’s been a quiet night of trade in currencies and equities tonight with some of the major bourses in Asia still on holiday, but the downward pressure on EURUSD continued as the pair hit two-week lows dipping under the 1.0800 big figure before rebounding slightly.

Equities in the meantime continued their merry march upward, rising about 60 basis points in overnight trade as stocks look past the woeful economic data towards a resumption of activity in G-11.

The data was truly, historically horrid with EZ PMI barely able to hold double digits as it printed at 13.6 which was actually just a tad better than 13.5 eyed. But investors are ignoring the lockdown results and are fully pricing in the prospect of re-opening as most of the major industrialized economies edge towards the resumption of activity.

Today’s key eco event will be the ADP report which is expected to show a loss of more than 20M jobs – a mind-boggling figure but one that the market may take in stride if there are more positive prospects ahead.

We have of course been highly skeptical of the “back-to-normal” trade as the underlying dynamics suggest that the return to business will be anything but normal, with many small businesses likely shuttered for good and the retail and energy sectors looking to enter Chapter 11 proceedings almost wholesale. Add to that the fact that the US has made absolutely no progress in reducing COVID infections as the death rate moves inexorably towards the 100,000 tally while the lift of the shelter in place provisions almost guarantees the second wave of new cases.

For the market, however, none of these considerations matter much. The G-3 central banks remain accommodative and easy credit and near-zero cost financing of positions have allowed speculative flows to proliferate. The G-3 central banks are even considering a new scheme of cross owning each other’s sovereign debt as a way to avoid the legislative limits imposed on them. Still, far be it for us to fight the tape, the tape is looking somewhat tired this week with SP stalling ahead of the key 2900 mark while Nasdaq meets some selling at 9,000. Those seem to be the key barriers for now and if we can’t clear then conclusively in today’s session some profit-taking may be due.

Meanwhile, in FX land the EURUSD remains pressured after the German court ruling yesterday which undermined the freedom of the ECB to set policy as it sees fit. As we noted yesterday the Germans are playing with fire as sentiment in the region is increasingly becoming polarized and their hundred-year-old obsession with hyperinflation is the exact wrong approach in a world that is slowing in danger of slipping into deflation. The next few months will prove pivotal for the region, but if the tension in the block persists it is not inconceivable to imagine the EURUSD at parity by summer’s end.

Boris Schlossberg
Managing Director

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