Last week was a volatile one in markets. Equity markets continue to fluctuate amid signs of improving economic conditions as lockdown restrictions ease and concerns that Covid-19 cases are rising again in some countries. Two weeks ago, there was a sharp sell-off in equities among reports of new coronavirus cases in Beijing and an acceleration of the number of cases in several US states. Confirmation from the Fed of its intention to buy corporate bonds and reports that the US government is considering a $1trn infrastructure spending boost, helped push US equities up earlier in the week. Despite some further wobbles later in the week, most equity markets seemed set to end the week higher.

Sterling has slipped to its lowest since the end of May against the US Dollar and to its lowest since March against the euro. This, despite a rise in UK market interest rate expectations as no BoE members voted for a further cut and QE did not go beyond expectations. The “risk-on and risk-off” tone as well as the ongoing trade talks for Brexit remain two risk factors for Sterling.  Some reports suggest that growing concerns about the lack of progress in UK-EU talks surrounding the future relationship may be helping to drive down the pound.

This week there will be a lot of focus on PM Johnson on Tuesday, he will be discussing the likelihood of the hospitality sector reopening on 4 July and if the 2 meter social distancing rule in England can be relaxed. Meanwhile Chancellor Sunak is reportedly preparing a package of stimulus measures – including a temporary cut in VAT. The hope is that this temporary cut will stimulate economic activity in the UK.

Today

  • US existing home sales
  • Chicago Fed national index

Both US existing home sales figures and Chicago Fed national index are expected to show improvements given that restrictions were eased from last month.

Tuesday

  • EU PMI services and manufacturing
  • UK PMI services and manufacturing
  • BoE Gov Bailey speaking
  • US PMI manufacturing

The market will keep a close eye on BoE Gov Bailey who is to speak at the HM Treasury Women in Finance Charter’s annual review. While at the same time, the PMI services and manufacturing are released for both the UK and Eurozone. A timelier release of economic data is expected to point to economic conditions improving as lockdown restrictions are ease.

Wednesday

  • German IFO business sentiment

The Germany’s IFO survey for June is also likely to signal some improvement in both current conditions and future expectations, although both measures are expected to remain well below pre-pandemic levels.

Thursday

  • UK CBI realised sales
  • US durable goods
  • US GDP (Q1 Final)
  • US jobless claims

In the US, the big bounce in May retail sales is predicted to translate into a sharp rise in overall consumer expenditure. Other areas of spending are likely to have been much weaker. Many consumer service providers, which account for a large part of overall spending, continue to be locked down. Consumer behaviour is expected to show a big bounce in durable goods from -17.7% to circa +10%. In the meantime, the initial US jobless claims will continued to be watched with expectations to remain elevated at 1.3m.

Friday

  • US personal spending
  • US core personal consumer expenditure
  • US UoM consumer confidence

The focus will be on US data today as US personal spending, US UoM consumer confidence and inflation data is set for release. The market will be keen to articulate the trajectory of the improvements.

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

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