Daily Market Commentary 22nd July 2020

The EU passed a massive bailout/stimulus package, after a record five day meeting and heavily contested negotiations. The EU agreed to a EUR$750 Billion bailout, which is a heady mix of grants and loans to members heavily impacted by the pandemic, while sharing the responsibility for the debt. The members also agreed a record 7-year budget, post-Brexit, which consolidates the integrated political union. This is seen as a landmark event, which breaks new ground, making debt a collective responsibility. This could signal the beginning of the end, as heavily indebted nations lean on the fiscally responsible. The EUR spiked to 1.1530, while the GBP jumped to 1.2760, following positive developments on the vaccine front in the UK.

Rising market confidence is being assisted by vaccine developments and positive economic data, which is reflected in global equity markets. This has also allowed the safe-haven US Dollar to beat a retreat, with the AUD spiking to 0.7130, while the NZD jumped to 0.6630. The RBA minutes revealed that many alternative monetary options were being considered. The Central bank had discussed debt monetisation, negative interest rates, FX interventions and private sector asset purchases. Members endorsed longstanding principles separating monetary policy from the financing of Government. Hallelujah! Most Central Banks do not have the principle or courage to maintain traditional monetary policy convention, with most funding Government debt through monetisation, which corrupts market interest rates and will have long term repercussions.

The commodity currencies have been major beneficiaries of a falling reserve and busted through technical ceilings. The local currencies have broken out and market confidence remains key, while trade remains a serious Geo-Political risk.