There Is Still A Lot Of Wood To Get Chopped This Week

Markets

US equities were little changed Tuesday; S&P edged up a touch to set yet another fresh record high nudged on by a large beat on US consumer confidence, rising 7.3pts in June, with the 'jobs plentiful/hard to get' ratio rising to 46.2, second only to the record high amid the tech boom in July 2000. So, it was indeed encouraging news all around.

US stocks struggled to find direction but ultimately closed higher for the 4th consecutive session, despite rising concerns of COVID variant around the globe. 

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Growth recovered to outperform Value, with Mega cap Tech topping the leaderboard again. Utilities were worst in class, closing down -1.65%, despite rates remaining relatively unchanged. 

Still, there is a lot of wood to get chopped this week. In addition to the highly anticipated jobs report Friday, this week will also see China's President Xi Jinping delivered a speech as the nation marks the 100th anniversary of the founding of the Chinese Communist Party on Thursday, along with OPEC+ ministerial meeting slotted same day.

There seems little doubt that delta-driven case counts will rise after the summer in Europe and the US. For markets, it will be important how governments and central banks deal with the possible fallout. 

Will there be other lockdowns and mobility restrictions? In the US, this seems very unlikely even if the vaccination rate remains under 50% and case counts were to rise again into autumn and winter. In contrast, the European high bar to put in place new restrictions seems much lower. Moreover, political incentives in, say, Germany or France appear to favor lockdown conditions over an open-up approach.

FOREX

On G-10 Forex, the question is, where do we go from here? I do not have a current view or major FX trade onboard. Still, it feels like we are about to enter a low vol currency phase in Q3 highlighted by some choppy USD strength as traders realize we are well past peak US dollar debasement with the Fed implicitly more forward-looking and data-dependent. 

The June FOMC decision has removed the inflation tail risks. As a result, investors have concluded that the reflation trade looks less attractive on the rates and currency side. While inflation was never much of a concern in the Eurozone, the UK is a different kettle of fish. I continue to expect the Bank of England to take a less dovish turn over the next few weeks, which I think could push the cable back over 1.40 and EURGBP below 0.85. 

Oil Markets

Crude oil is moving higher again. At the start of the OPEC joint technical committee meeting, the OPEC Secretary-General said the current uncertainties call for prudence, noting risks from COVID mutations and sovereign debt levels.

A spike in COVID infections attributed to the Delta-variant of the virus has caused a minor wobble in the oil price. However, while it is undoubtedly sensible to pay close attention to developments, there does not seem to be a high probability of major oil-consuming western economies moving back into full-scale lockdowns.

But With oil near the top of the recent trading range (and having just pushed to multi-year highs), sentiment is more than usually susceptible to news flow that challenges the prevailing bullish narrative. 

The OPEC+ meeting on Thursday (preceded by Joint Technical Committee & Joint Ministerial Monitoring Committee meetings) seems likely to consider seriously additional easing of production cuts, with the Bloomberg consensus suggesting a 500kb/d production increase is likely. However, even with an increase of this magnitude, the market would remain in deficit this year, limiting material downside risk for oil.

Gold Markets

Bullion is heading for its most significant monthly drop in years, as it repeatedly fails to overcome the 100dma. Prices are on a four-week downtrend, while open interest has slid for five straight weeks. There is resistance at last week's high of $1790, with support at $1750. The spot was lower overnight on the back of a firmer USD, with many bearish near-term chart signals weighing on the yellow metal.

Despite the downtrend in gold, concerns about the spread of the Delta variant of COVID may lend some support to the yellow metal.

Travel in Asia?

For Travel economies, the question is just how fast will Countries open up? When will global travel be fully open again? Well, as far as Asia-Pacific is concerned, not very soon, it seems, though Singapore and Hong Kong might move sooner. Or, as The Wall Street Journal [paywall] notes, "Australia and mainland China, in particular, seem to have no intention to open meaningfully to the outside world within the next 12 months - despite plans to have their adult populations vaccinated long before then".

USDTHB jumped again with more COVID cases and mobility restrictions in Thailand. And with the possibility of rising Delta-variant cases against the backdrop of a horrible domestic vaccination rate, things could get worse before better.

With the Delta variant spreading worldwide, investors and travelers are paying more attention to COVID again. It is certainly not great timing for the Phuket Sandbox, as rhetoric around limiting international travel will continue to percolate and could certainly dampen any hope for a nascent local economic recovery based on travel.