Tug-of-War is here to Stay

Price action is keeping the balance between heeding the resurfacing cases of Corona virus, while asserting the positives of re-opening economies, muted dissent on the US-China trade front and Fed's willingness to cap bond yields.  CAD was the top performer while the Australian dollar lagged. Below are the release times for different US states. USD stabilises against EUR, GBP & CAD, while XAG, AUD & NZD gain as tech indices outperform DOW & SPX. The weekly Premium video raises questions over EUR complacency and most optimal zone for DOW and DAX daytrades.

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For weeks the market shrugged off virus news and focused on the reopening but that has changed. A series of headlines on Tuesday sparked an immediate market reaction. Beijing has gone back into somewhat of a lockdown and closed schools.

Those headlines hit the same time as a jump in Florida cases, something we warned about yesterday. That was later followed by higher cases in Texas and an especially large jump in Arizona. Each of those headlines led to a negative kneejerk in risk trades.

Dip buyers fought on the other side of the trade but they were discouraged when Powell said the corporate bond buying program is more of a fall-back and will be used flexibly. The implication is that the FOMC won't be using the full $750B allotment unless market conditions deteriorate.

That the market was able to withstand all the negative news was a testament to the reopening narrative. It was boosted by a 17.7% record jump in May retail sales compared to +8.4% expected.

The question now is how much of that is boosted by government stimulus and one-off pent-up demand. It will be some time before that question is answered but on the industrial side the numbers are less-promising. Industrial production rose 1.4% in May after a record 12.5% decline in April. That was short of the 3.0% rise forecast.

Also consider that German Finance Minister Scholz said not to expect any major lockdown in the event of a second Covid-19 wave.

All the back-and-forth is a sign of uncertainty and it will take some shift in data or a continued acceleration in the virus to break the impasse.

For reference, the state virus data is out at approximately the following times: Texas 1820 GMT (hospitalizations 1500 GMT), Arizona 1620 GMT, Florida 1430 GMT.