Morning Report – Monday 6th July

Main Headlines

The weekend brought more bad news related to coronavirus. The WHO reported a one day high in global infections, while Iran and South Africa had their deadliest days and Benjamin Netanyahu said Israel is in a state of emergency. Stocks seem resistant to bad news as U.S. and European futures rallied with Asian equities amid expectations for policy support. S&P 500 contracts climbed more than 1% as investors got set to return from the Independence Day holiday. Shares in Shanghai surged more than 4% on strong volume, buoyed by positive commentary on the market. Oil dropped and gold was little changed and treasuries moved lower.

Christine Lagarde said the euro zone faces around two years of downward pressure on prices but could then see a turnaround as the crisis accelerates the transformation of the economy. The ECB head said the pandemic will spur a pre-existing shift toward greater digitalisation and automation, shorter supply chains and greener industries. On policy, exceptional measures including negative rates and QE are probably here to stay, Francois Villeroy de Galhau said.

GBP

Sterling closed of last week with its first positive week in four as a week of negotiations between Britain and the European Union ended prematurely, with meetings expected to resume this week. The EU’s chief negotiator, Michel Barnier, said last Thursday said serious divergences remained between the two sides after talks this week on their future relationship. British Prime Minister Boris Johnson said on Friday he was more optimistic than Barnier that a post Brexit trading deal could be struck, but said Britain could leave the bloc without a comprehensive agreement if needed.

EUR

The euro is trading in a tight range this morning before economic data from Germany and the eurozone that are also forecast to show a sharp rebound in corporate activity and retail sales, which would ease concerns about the economic outlook.

USD

The dollar held steady against most currencies this morning as investors awaited data expected to show the U.S. services sector stopped contracting, which would further lift optimism for an economic recovery from the coronavirus pandemic.

Main Economic Data/Central Banks/Government (All Times BST)

7:00 a.m.: Germany May factory orders
8:00 a.m.: Spain May industrial output
8:30 a.m.: Germany June construction PMI
9:00 a.m.: U.K. June new car registrations
9:30 a.m.: U.K. June construction PMI
10:00 a.m.: Euro-Area May retail sales