Equities and risk markets are struggling to gain traction in Asia today, but there are few signs of a broader risk-off/contagion. Still, with COVID-19 filling the airwaves, investors have been uncomfortable chasing the market higher. And with the central banks fully priced, I suspect they will be quick to take profit on upticks given Q2 rebalancing and the significant economic data risk events that lie in wait this week.
Indeed, this is a critical data week for risk sentiment. Investors will try to gauge the impending shift from rapid data improvement to economic stability as investors turn their focus (outside or COVID headline bombardment) to the speed and level of recovery that so far remains well below average.
The market has two things to deal with this week. On the data front, the US NFP and the ISM are expected to show a further pick-up in consumer activity. However, the critical thing for risk this week will be how the market deals with the ongoing pick up in virus cases.
Indeed 10 million COVID cases are an astonishing number for all the wrong reasons, so rising US cases will be the market sentiment and valuation driver of risk assets this week again.
Government yields are slipping, and gold is trading at an 8-year high as a reflection of the flight to quality. Although risk has stabilized, it seems that like markets will continue to trade in lockstep with COVID headlines, good or bad.
Asia continued where we left it on Friday. Tokyo and Sydney are down 2%, Hang Seng and Shanghai down ~1%.
European stock futures are indicating an open 0.5% lower. Unless something positive surprises, one can expect a more muted start to the week. It needs to be seen if the bid return as Investors certainly have the cash have to spend, but maybe the fire sale isn't cheap enough yet where they are willing to invest.
Still, death counts are not rising anywhere near the percentages we saw in March and April. It is not easy to extrapolate much out of that as more testing could be watering down the fatality rate. But the optimist in me likes to think this is due to better treatment of the virus,
With widespread lock-downs are the most unlikely course, so markets seem to be just shrugging off these concerns in no small degree.
Still, investors are not aggressively fading the downswings as we had seen early in the month. On the surface, it continues to suggest that all the good is in the price right now, and the market needs a new catalyst to fire higher.
But that wall of worry is also starting to build again about what happens in Q3 and beyond when you would expect to get more negative news flow regarding employment data. Who knows that reality check might even occur on Thursdays NFP?
Forex
G10 FX markets are struggling for direction again, and what volume appears to be going through seems to be mostly calendar-related flows. It's been a quiet start to the week in Asia thus far. Despite containment concerns in the US suppressing risk sentiment, most pairs are trading near last week's close. The street is watching equities for momentum in case we start to push northbound again.
Oil
The market is universally bullish oil, but traders think barrels might come cheaper this week, with the uptick in floating storage data that is definitely curbing the market appetite early this week beyond the COVID knockdown. Still, the perma-bulls remain lurking on the bid on the back as OPEC + compliance backstop, which continues to resonate as does the improving cyclical data backdrop suggesting that once the hospitalization rates drop and the COVID curve begins to flatten in either Texas, Florida or California, oil prices could take flight.