Gold Breaks 1800, USD Vulnerable to China
Ashraf adds that one of the factors weighing on USD specfically today, is the potential blowback by Beijing towards US assets in the event that US officials' treat to destabilise Hong Kong's USD peg see any fruition. How can the Trump administration seriously consider taking on the world's 3rd largest financial center, that is governed by the world's 2nd biggest economy, which also happens to be the world's 2nd largest source of US-deficit financing? And can we imagine what happens to USD value if a major USD-peg is attacked?
Back to Virus cases. The market initially cheered some US state coronavirus numbers released on Tuesday but the details tell a different story. Florida and Arizona both reported numbers below the 7-day average and the initial reaction was strength in equity markets. The market later soured and details of the numbers were one reason why. The declines in both numbers were entirely a result of lower testing, likely due to effects from the US long weekend. Both states recorded a higher percentage of positive cases including 33% in Arizona.
Deaths have also been gaining more attention but after just 235 in Monday's report, they rose to 322 Tuesday and for the day ahead Arizona and Florida alone have nearly matched the Monday total so expect a further rise. Note though that it's still far below the 3000 daily mortalities from April.
Early Wednesday, Texas reported 10,028cases with hospitalizations hitting records in that state and California. The day ahead will be an especially stern test of the market's resolve because the testing will rebound and that could mean a doubling of cases. Under normal circumstances the market would have already anticipated that but lately the market tends to take things as they come.Along the same lines, Atlanta Fed President Bostic introduced the idea that data was 'leveling off' on Tuesday in an interview with the FT. He later repeated the same line and so did Philly Fed President Mester with both highlighting high-frequency data. Watch for that talk to work its way up the Fed ladder to Governors, the chairman or even the FOMC statement on July 29. Again, the market should start to anticipate something along those lines, but if it's not coupled with significant Fed action, the market could recoil.
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