July 1, 2020 / 8:36 AM / 7 days ago

Daily Briefing: A new quarter

LONDON (Reuters) - A quick look back at the Q2 market league tables - the world equity index rose 18% for its biggest three-month gain since 2009.

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, June 30, 2020. REUTERS/Staff

European stocks had their best quarter since March 2015 while the S&P500 outdid them all with its best quarter since 1998. U.S. 10-year bond yields remained more of less unchanged around 0.65% while U.S. corporate bond yields, bucked up by Fed buying, tumbled an astonishing 140 basis points.

On to the new quarter. The same old factors are driving markets – improving data and the central banks’ backstop - but there is an underlying fear of coronavirus lockdowns.

On that front, Japan said it could reimpose a state of emergency in response to the virus. Tuesday meanwhile saw new U.S. COVID-19 cases rising by more than 47,000, according to a Reuters tally, the biggest one-day spike since the start of the pandemic, as the government's top infectious disease expert warned that number could soon double.

Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, adjusts his face mask during a senate committee hearing in Washington, June 30, 2020. Al Drago/Pool via REUTERS

Unsurprisingly, gold is staying well bid – it surged above $1800 for the first time in eight years. The yen too has firmed off three-week lows against the dollar.

But stock markets are mixed. Europe is opening weaker and the United States is set to do the same, but Asian stocks shrugged off, at least for now, the Chinese national security law that would see Beijing tighten its grip on Hong Kong push it further along a collision course with the United States, Britain and other Western governments. 

Hong Kong markets are closed this morning so focus instead is on China’s improving PMIs and the central bank cutting the re-discount and re-lending rates by 25 basis points as of July 1, in a move to reduce funding costs for smaller firms and rural sectors.

The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) rose to 51.2 last month, the fastest pace of growth since December. It’s a pattern visible elsewhere. Blue chip Chinese shares jumped 1.7% and financials are up 2.5%.  

World stocks are flat so far and U.S. futures are a touch lower after last night’s strong close driven by data showing a rebound in consumer confidence – the Conference Board reading jumped to 98.1 in June from a downwardly revised 85.9 in May. (Remember though that’s still 35 points below pre-pandemic levels).

Markets are opening a touch weaker in Europe too. But on the other hand, U.S. and German bond yields are up marginally as well.

Continuing the theme of improving data, German retail sales bounced 13.9% in May as lockdowns eased, beating forecasts. Australian PMIs too were back in expansion territory but in emerging markets the picture still looks dire – India’s factory activity for instance contracted the third month in a row.

Looking ahead to today - the ADP jobs report for June is due for release. This may provide some insight in the official U.S. jobs report on Thursday.

Sweden’s central bank just held its benchmark rate unchanged at 0% and expanded its asset purchase programme.

We also get the minutes from the June Fed meeting which could show what kind of discussions were had on yield curve control.

But if economies are recovering slowly, the jobs front is looking dire especially in certain industries – aviation is a key example. Airbus unveiled plans to shed 15,000 jobs within a year while Ryanair plans up to 3,500 job losses, Air France hopes to shed 6,500 jobs in the next two years, Reuters reported on Tuesday.

That comes on top of British Airways being due to axe 12,000 positions, easyJet losing 4,500 and Lufthansa Group cutting the equivalent of 22,000 full-time positions.

In emerging markets, while Chinese PMIs were robust, new export orders stayed firmly in contractionary territory, the survey showed. Korea’s June exports shrank for fourth month, pressuring the currency.

— A look at the day ahead from EMEA deputy markets editor Sujata Rao. The views expressed are her own —

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