Here is what you need to know on Tuesday, June 16:
The market mood is “risk-on” once again, as the Federal Reserve announced buying corporate bonds and lawmakers discuss infrastructure spending. Investors shrug off coronavirus concerns ahead of the Fed Chair’s testimony and all-important retail sales.
Monetary stimulus: The Fed announced on Monday that it will buy corporate bonds as part of its Secondary Market Corporate Credit Facility (SMCCF). The Fed previously used the program to buy Exchange Trading Funds (ETF) and now it is going directly for bonds. The $750 billion and also includes buying new bond issuance.
Jerome Powell, Chairman of the Federal Reserve, will testify on Capitol Hill and may refer to the program, the Fed’s tools, negative interest rates and also recent economic data. Markets will watch the Retail Sales figures for May, which are set to show a rebound after tumbling in April. Uncertainty is high.
See Retail Sales Preview: Deferred consumption or cancellation?
Fiscal stimulus: President Donald Trump is reportedly looking into a $1 trillion infrastructure spending program. While the move may look like a pre-election candy, it could boost the economy. Previous administration promises about building roads have not materialized.
Chinese second wave? Around 100 people have been confirmed to have COVID-19 in Beijing, mostly linked to a large market. Authorities have taken steps to contain the disease, including by banning residents with high risks from leaving the city. The new cluster in the capital is seen as a test for authorities in the world’s second-largest economy.
US second wave?: Coronavirus cases continue rising in around 20 US states, including large Texas and Florida. While more infections can be attributed to testing, the increase in the hit rate in these probes and rising hospitalizations indicate underlying issues. Markets have moved to focus on other topics.
Sino-American relations: US Secretary of State Mike Pompeo will reportedly meet his Chinese counterpart Yang Jiechi. The two men are set to meet in Hawaii and may discuss Hong Kong, coronavirus, and more. Also, the US Commerce Department will reportedly allow American companies to work with Huawei on 5G standards. Better relations between Washington and Beijing may boost sentiment.
Brexit breakthrough? Prime Minister Boris Johnson said that there is a “very good chance” or striking a deal with the EU about future relations. He held an hour-long video call with European Commission President Ursula von der Leyen and other top officials. Details are still lacking but talks will resume on June 29. GBP/USD has bounced toward 1.27.
The UK unemployment rate remained low at 3.9% in April, but jobless claims jumped by 528.9K in May. Sterling edges lower amid the mixed data.
EUR/USD is trading above 1.13 amid the better mood and as Europe seemingly has COVID-19 under control. The German ZEW Economic Sentiment is projected to continue its recovery.
The Bank of Japan has left its policy unchanged as expected. The Tokyo-based institution has described the economy as increasingly being in a “severe state.” USD/JPY is trading above 107, trading according to the general market mood.
AUD/USD is trading above 0.69 amid the upbeat mood. The Reserve Bank of Australia’s meeting minutes reiterated the pledge to support the economy for “some time.” The RBA is ready to increase bond purchases and pledged to leave rates unchanged until the economy progresses. Officials noted the Aussie’s appreciation.
Gold remains confined to a narrow range of around $1,730, looking for a new direction and shrugging off the recent mood change.
WTI Crude Oil has recovered and trades around $37. Brent is closer to $40.
Cryptocurrencies have been experiencing higher volatility, tumbling early on Monday before bouncing. Bitcoin trades at around $9,500.
More Why EUR/USD may rally, where to find the key to gold move, lots more – Interview with Richard Perry
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