Risk Recovers as Bond Markets Start to See Sense
If it looks like a duck, walks like a duck, and quacks like a duck then, guess what, it is a duck! The recovery this week makes sense as the flight into US bonds did not really make fundamental sense. US-China tensions, slowing growth, and the rise of the Delta variant were all known risks going into the start of the week. So, the recovery mid-week is in keeping with the current accommodative monetary policy, broad fiscal stimulus, and global optimism on a successful vaccine program. A deeper correction in stocks is due at some point, but that is more likely to come on signs of US policy normalisation rather than it is on the known risks.
Other key events from the past week
- * EUR: ECB rate decision, July 22: The ECB was expected to have a dovish twist this week, but in the press conference Christine Lagarde said that guidance is not ‘lower for longer’. The PEPP & APP programs were also left unchanged and the doves were disappointed allowing EUR strength out of the meeting.
- * AUD: Retail sales, July 21: The retail sales data for June from Australia came in softer at -1.8% vs -0.7% prior. When you consider that lockdowns only started around the end of June then this sends out a warning signal for Australia’s economy going forward.
- * Bitcoin support?: Still holds $30,000, July 20: Whales, those holding between 1k-10K Bitcoins, have started accumulating their positions again while Bitcoin has been in the $30,000 region. Is daily support around $30,000 now the floor?
Key events for the coming week
- * USD: Interest rate decision, July 28: The intense focus for markets is when will the Federal Reserve taper? Any news of bond tapering and expect USJPY to run higher. Register for our free trading webinar to get your plan for the week ahead.
- * Seasonal trades: Find a trade, July 29: This week saw some choppy action in the S&P500. Watch out that any signs of Fed normalisation do not induce another sell-off in stocks next week. Check out the S&P500 seasonal pattern here.
- * CAD: GDP boost? July 30: The last BoC meeting was far more neutral than the previous two meetings. Will this week’s GDP justify the Bank of Canada’s caution or will there be a surprise boost for the CAD?
Giles Coghlan
