Tuesday August 3rd, 2021

The US$ slips, oil prices edge higher, equity markets are mixed, while US yields are up on mixed market mood. The US$ and US yields are off their lows as concerns over slower global growth increase with the rise in global covid cases. On Monday the US ISM Manufacturing index dropped to 59.5 in July raising concerns that US manufacturing growth is cooling. Investors are now worried that growth is peaking and will be focused on a busy week of data releases culminating with the US Nonfarm payrolls report on Friday. In other news, The US Senate will attempt to complete work this week on the US$1T investment bill. The IMF approves a US$650 billion fund expansion to fight the global covid impact. China imposes controls to tackle gaming addition among children branding it ‘spiritual opium’ as Beijing’s continues its assault on tech companies and their perceived social impact. COVID, In China 44% of 32 provinces report a spike in Delta variant cases. Japan extends its state of emergency curbs on Monday as cases hit a record in Tokyo. In the US the spread of the Delta variant saw hospital admissions hit record levels in Florida & Louisiana. In currency markets, AUD spikes after its central bank announced it planned to taper its bond buying. NZD strengthens on news its central bank is looking to tighten its mortgage lending standards. GBP edges higher on rising optimism as UK covid cases fall. CNY weakens 0.1% as domestic covid cases rise and the shutting of domestic transport links, while Asian currencies are up 0.1% on average vs US$. Trading currencies strengthen with JPY up 0.1%, MXN is higher 0.35%, AUD & NZD strengthen 0.45%, while ZAR & NOK rally 0.65% vs US$. Today markets will be focused on covid update, US Factory Orders and Fed Bowman’s speech for intraday direction. 

Oil prices bounce following Monday’s 3% sell off in crude prices as demand concerns rise as OPEC increases 400k bpd supply and 14 of 32 provinces in China report increases in Delta variant cases. The rise in Delta variant across the US and China raises concerns of slowing manufacturing activity and reduced oil demand. C$ holds above 1.25 and remains an outlier to its peers as the loonie remains under pressure as global growth concerns could impact Canada’s commodity exports. Intraday focus will be on CAD Markit Manufacturing PMI results, alongside US data for direction today. Support resets to 1.2445, while resistance sits at 1.2540, if breached look for 1.2605. 

Euro drifts below 1.19 as risk off sentiment resurfaces. Rising concerns that global growth may have peaked after Mondays US ISM Manufacturing Purchase Manager Index decreased more than expected below the psychological 60 level. On a positive note, Spain reported a drop in covid cases and the UK opens quarantine free travel to double vaccinated Europeans. Expect Euro to consolidate within recent trading ranges as markets focus on covid updates and awaits Friday’s NFP data. Support rises to 1.1835 with resistance resets to 1.1944 (June28th).

EURGBP weakens as investor optimism increases as UK covid rates fall and Brexit concerns ease should support the pound going forward. Support resets to .8495 Apr 5th (1.1770) with resistance remaining at .8600 (1.1628).

GBP extends its gains vs US$ supported by falling UK covid cases. The pound extends its gains beyond 1.39 levels as the government tackles its “pingdemic” and clarifies its policies. The UK has over 70% of its population with at least 1 vaccine shot and has seen its daily case count drop from its peak of 50k daily cases to 20K daily implying better UK growth prospects and increases the potential for the pound. Expect the pound to remain an outlier to its peers with the potential of further strength. Support rises to 1.3890 while minor resistance at 1.4010, if breached we could extend to 1.4132 (Jun16th).