Stimulus Snag, China Chugs Along

Backsliding coronavirus data and scant progress on an extension of US coronavirus stimulus are the themes early in the new week. Markets will await the ongoing US negitiations regarding the next stimulus ahead of key ISM data and NFP on Friday. The pound was the top performer last week while the New Zealand dollar lagged. Early on Monday the China Caixin PMI rose to the highest since 2011. US manufacturing ISM is due next. Here is another look at those August seasonals. 

The area around Melbourne, Australia moved into a phase 4 lockdown on the weekend that includes 8 pm curfews and no leaving the house except for essentials. It comes after officials revealed 760 virus cases in the region where they don't know the source of infection. The new rules will last for six weeks.

The Philippines also put on stronger restrictions in Manila and nearby provinces with cases spiking. There is backsliding elsewhere on the virus as well so this could be a preview of what's to come. There's increasingly clear evidence that shortly after restrictions are eased, cases begin to pickup. That paints a back-and-forth picture of the recovery rather than the V-shaped rebound some called for.

The economy will be a big focus in the week ahead with US non-farm payrolls coming Friday. The consensus has been sliding from +2m and now sits at +1.578m. Goldman Sachs was out with a notable weekend call, saying its real-time metrics suggest 1m jobs lost.

In China, however, the picture is better as officials aggressive clamp down on outbreaks. The better-than-expected PMI Monday is a reminder that it was massive Chinese stimulus that dragged the global economy out of the rut in 2009.

Note that after the big runup in Chinese equities to start July the market has consolidated and may have carved out a double bottom.

Although economic data will be important this week, it will be overshadowed by US government stimulus negotiations. The only thing both parties can agree on so far is another $1200 cheque. The longer the stalemate goes on without a sign of progress, the more likely markets are to sour. Keep a close eye on 10-year yields and a potential break of 0.53%.