Last week the focus was firmly on the prospects of a second wave of COVID-19 in the US. Last Monday in New York City, restaurants resumed sit-down service with outdoor-only seating. However, on Thursday, the US reported a new record for daily COVID-19 cases, with an increase of more than 40,000, exceeding the previous daily record in April. By Friday, Texas and Florida ordered bars and taverns to close. So far, new cases have been restricted to four states Arizona, California, Florida, and Texas which saw US daily case numbers jump sharply in June. The market will be watching closely as this story develops. If sentiment slides as a result of COVID-19 second wave fears growing, then the US Dollar could strengthen as a result.

Compounding the decline in sentiment has been the mounting trade tensions. It was reported last week that the US is considering imposing additional tariffs on imports from the EU and UK. The IMF, meanwhile, revised down its 2020 global growth forecast to -4.9% from -3.0% in April.

Focusing on the UK, it was publicised that air bridges are due to be announced over the coming days whilst the government announced that social distancing will be cut from 2 metres to just over 1 metre. On Friday, UK Chancellor Sunak stated that the UK is past the acute phase of the crisis while the furlough scheme will not be sustainable. Over the weekend Prime Minister Boris Johnson stated that the UK would be prepared to accept an Australia-style Brexit trade deal (effectively built on World Trade Organisation terms and is therefore effectively a ‘no deal’ Brexit). Prime Minister Johnson will pledge this week not to return to austerity in the aftermath of the coronavirus crisis and will look to accelerate infrastructure projects.

Trade talks between the UK and EU resume today and see the start of a month of intensified negotiations between the two sides. These will be the first face-to-face talks since the COVID-19 pandemic hit Europe, infecting the EU and the UK’s chief negotiators. The month of intensified talks will include weekly meetings – at times in London, at others, in Brussels.

The US will have a shortened week as Friday will be a public holiday for it 4thJuly Independence Day.

Today

  • UK/EU trade talks resume
  • UK BoE Gov Bailey speaks

There will be the obvious focus on the UK/EU trade talks as they resume following an agreement to intensify. Several central bank policymakers are also due to speak. In the UK, BoE Governor Bailey and MPC member Vlieghe are scheduled. Meanwhile, in the US, we hear from Fed members Daly and Williams.

Tuesday

  • Chinese Manufacturing
  • Eurozone inflation
  • US Consumer confidence
  • FOMC Chair Powell

It will be a busy day in terms of economic data with the Chinese manufacturing data set for release in the early hours. With China emerging from lockdown first, the market is continuing to focus on data from the region for clues on future growth projections. Eurozone inflation will be monitored but is expected to remain tepid. In the US, consumer confidence will be monitored for clues ahead of the jobs data later in the week. Finally, Fed Chair Powell is due to testify, along with Treasury Secretary Steven Mnuchin, before the House Financial Services Committee, in Washington DC.

Wednesday

  • US ADP employment report
  • FOMC Minutes

The US ADP employment report will be watched as a signpost ahead of the official government labour data. It is expected to show 3m increase in jobs, however, the figure is watched but largely ignored by the market as a we have seen large discrepancies between this figure and the official numbers. The FOMC minutes are also due for release but are expected but it is unlikely that there will be any surprises given FOMC Chair Powell recent testimony in Washington.

Thursday

  • US Labour Data

Last month recorded an unexpected, albeit partial, rebound of 2.5m jobs after plunging by more than 20m in April following a loosening of restrictions. For June, the market is forecasting in another increase of 3m in nonfarm payrolls and a further decline in the unemployment rate to 12.3% from 13.3%.

Friday

  • UK PMI Services

This is the second (final) reading of the UK PMI service data. The first reading saw UK services PMI improved for a second month to 47.0, pointing to a likely return to economic growth in Q3, no change is expected.

Read out Monthly FX Forecast for a longer term view of currency to movement.

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