Daily Market Commentary July 3rd 2020

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US Markets surged, in the first trading week of the third quarter, boosted by strong employment data. This follows the record gains in equity markets, in the second quarter, as the economy re-opens and monetary stimulus floods the markets. Non Farm Payrolls added 4.8 million jobs, blowing away the 3 million expectation, following the shock turnaround in the previous report. Headline unemployment fell from 13.3%, to 11.1%, while the participation rate rose to 61.5! These labour market numbers added to the gains, for the shortened week, due to the Independence Day long weekend.

Markets were growing in confidence, despite the downside risks, with virus rates spiking in the US. US Southern States infection rates are spiking, with Florida recording 10,000 new cases, while the US recorded 50,000 for a single day! This is mainly due to a massive increase in testing, while the mortality rate remains low, calming any panic. This allowed the reserve currency to soften, with the EUR trading 1.1230, while the GBP held above 1.2450.

The big risk to the trade exposed, commodity currencies, remains China. China has warned the USA, UK and Australia against interference in their Geo-Political activities. China passed legislation to remove autonomous rights in Hong Kong, which follows aggressive actions in the South China Sea and on the Chinese-Indian border. The US is passing sanctions on China, while both Australia and the UK have offered sanctuary to many Hong Kong citizens.

This was all shrugged off by markets and allowed the AUD to consolidate above 0.6900, while the NZD pushed to 0.6500. Trade disruption are a critical risk to these currencies, with China a key trading partner and in control of the existing supply chain. Massive economic and Geo-Political risks threaten the status quo and the recovery of these, recession hit economies.

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