Good morning
Well global equities continue to show strong declines as risk sentiment falls. Difficult to know whether risk sentiment is lower because of possible tightening due to higher inflation, of geo-political issues such as US/China relations, or the every-increasing Covid infection numbers. The reality is that is is probably a bit of all of them.
For inflation, Fed officials, Biden and Yellen have ll talked about higher inflation being temporary, but there is a real concern that they have got this wrong. Any tightening from central banks is certainly negative for the markets.
For international relations, US and China trade is not necessarily what was agreed, relations are tense and neither side is willing to give a great deal of ground. Add to that the China links to recent hacks, the China military build-up in the South China Sea, plus the ongoing issues for Taiwan and Hong Kong and it becomes difficult to see just how decent relations can be restored.
Covid, well we know infection rates are rising and the fear is the UK have completely jumped the gun with ‘Freedom Day’ just as infections are worsening. We’ve not listened to Israel, who are just introducing Covid restrictions despite having been the the fastest country to vaccinate its citizens. The US didn’t help by raising the Covid warning for travellers to the UK to the highest level. GBP benefitted when the vaccine program was in full swing, now as a summer/autumn wave of covid cases seems on the cards, GBP is struggling. GBPUSD has been down to 1.3630 and EURGBP up to 0.8640 (GBPEUR 1.1575).
Its not all about the UK mind you. The RBA minutes show they worry about lockdowns as infection rates in Australia tick higher and make it clear they see no need for interest rate rises before 2024. In Japan the Olympics have not even started and there are already reports of Covid infections.
GBP lower, GBPUSD below low from March and April 1.3670 to hit lowest since Feb
PBoC kept policy unchanged overnight as expected.
Not a great deal of economic data due over the next couple of days but markets await the ECB rate announcement Thursday to see just how dovish they can sound, For now, Covid continues to lead the way.
- 09.00 ECB bank lending survey
- 13.30 US housing starts, building permits
- 00.50 Japan trade balance, BoJ minutes
- 02.30 AUS retail sales
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