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Research Market strategy
by Swissquote Analysts
Daily Market Brief

Consolidation as retail sales jump, Trump points at ‘complete decoupling’ with China

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Consolidation as retail sales jump, Trump points at ‘complete decoupling’ with China

By Ipek Ozkardeskaya

Asian stocks are set to close the week on a positive note, after having swung between hope of post-Covid recovery and fear of a second wave contamination this week. US equities were mostly flat on Thursday. Nasdaq led gains as investors felt more comfortable buying tech stocks, if they were to buy anything, amid record surge in new Covid-19 cases in some states in the US.

Meanwhile, Donald Trump said in a tweet yesterday that ‘the US certainly does maintain a policy option, under various conditions, of a complete decoupling from China.’ His words didn’t impact the market mood, though a complete decoupling between the US and China would significantly hit the US companies, already battered by the pandemic.

Also, yesterday’s data was little satisfactory. The weekly jobless claims in the US rose 1.5 million last week hinting that business reopening didn’t have a flourishing impact on jobs just yet.

In Australia, the retail sales jumped by a record 16.3% m-o-m in May as consumers rushed to stores following the easing of Covid-19 lockdown measures. The Aussie remained little changed against the greenback. But from a technical perspective, we are about to see a formation of golden cross on the AUDUSD daily chart, where the 50-day moving average is about to cross above the 200-day moving average. The latter bullish formation could enhance tactical long positions in AUDUSD and encourage another move above the 0.70 mark.

British retail sales soared 12% versus 6.3% expected by analysts and -18.1% printed a month earlier.

A side note before we move forward. While the post-Covid jump in global retail sales should remain short-lived, the normalization in economic activity and rising oil prices will certainly have a significant inflationary effect across the world economy. If the recovery doesn’t follow the pace of the pickup in consumer prices, the central banks may find themselves stuck with ultra-unorthodox policies, a thin margin for more action, rising inflation and high employment. In summary, the stagflation is the greatest risk of today’s ultra-loose monetary policies and may hit the emerging markets heavier than the G10 economies.

The strong US dollar gains strength against most currencies, except the yen and the Swiss franc as de-risking continues.
Gold remains stoic faced with the lack of clarity in market direction.

The black gold, however, gains traction on prospects of improved demand/supply dynamics despite the rising second wave worries and higher US inventories. A successful attempt on $40-offers should pave the way toward the next bullish target, $45.50, the 200-day moving average.

The Swiss National Bank (SNB) maintained status quo at yesterday’s monetary policy meeting.

The Bank of England (BoE) kept the interest rates unchanged and expanded the asset purchases program by 100 billion pound as expected. What was less expected is the BoE’s hint to unwind its QE program at a significant pace over time. The latter certainly wiped out the expectation of further expansion in BoE purchases and tempered the BoE doves in the wake of the announcement. The GBPUSD shortly retreated below the 1.24 mark. Firmer US dollar and somewhat frayed BoE doves are weighing on sterling, but the downside should remain limited given that the real deadline in Brexit negotiations seem to have been postponed to October, although the British and EU negotiators have six weeks of intense negotiations ahead. The barriers remain intractable, but there is hope that the pandemic will encourage Johnson to walk out the EU with a trade deal instead of empty hands by the end of this year.

Activity in FTSE futures (+0.19%) hint at a further consolidation near 6230p (the 100-day moving average) on the back of firmer energy prices and a softer sterling.

The EURUSD cleared the 1.12-support and rebounded from 1.1185 on the back of a stronger US dollar. The pair will likely extend weakness to 1.1160 Fibonacci support, which should distinguish between the past month’s positive trend and a bearish reversal.

 
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