Macro Commentary

Growing concerns over the virus pandemic have spooked the markets this week, with the US seeing a record rise in cases in some states, and Australia seeing its biggest spike since April. Fears of a potential second wave in the UK as the lockdown continues to be relaxed, are adding to the risk-off sentiment.

Global equities sold off aggressively as investors opted for safety, whilst UK 5-year government bonds hit a record low -0.04%.

The US threat of new trade tariffs on UK and European goods has added to the negative outlook, with the IMF this week downgrading its global economic forecasts.

UK data this week, including the critical services sector, was actually better than expected, recovering strongly from the initial impact of the virus in April. However, huge uncertainty remains, particularly for the jobs market, and what happens once the furlough schemes begin to be withdrawn.

On the exchanges, sterling remains range-bound with a low conviction rate.

GBP/USD dropped to a recent low of 1.2340 earlier this week before recovering towards 1.2500. There is growing selling interest above the 1.2500 level and ahead of the significant 1.2750, whilst 1.2250 is the next downside target.

GBP/EUR remains above the psychological 1.1000 level, but below the 1.1250 area, which continues to contain the topside.

GBP/USD – 1-year chart

Week ahead

Date Release Last Expected*
30/6/20 UK GDP QoQ -2.0% -2.0%
30/6/20 UK GDP YoY -1.6%  -1.6%
1/7/20 UK Markit Manufacturing PMI SA 50.1 50.2
1/7/20 US FOMC Minutes
2/7/20 US Nonfarm Payrolls 2509k 3000k
3/7/20 UK Markit/CIPS Services PMI 47.0 47.1
3/7/20 UK Markit/CIPS Composite PMI 47.6 47.7

*Bloomberg survey / Not available

Equity Indices

Indices Previous Close YTD % Change
FTSE 100 6162 -18.30%
S&P 3083 -4.55%
EUROSTOXX 3231 -13.71%
DFM GENERAL INDEX 2086 -24.53%

Foreign Exchange

Currency Last Currency Last
EUR/USD 1.1205 AUD/USD 0.6870
GBP/USD 1.2400 USD/AED 3.6730
GBP/EUR 1.1065 GBP/AED 4.5550
USD/CHF 0.9490 EUR/AED 4.1160
USD/JPY 107.10 XAU/USD 1763

UK Benchmark Rates

Libor   Swap Mid  
3 month 0.13700% 2 year 0.24%
6 month 0.29825% 3 year 0.25%
12 month 0.47100% 5 year 0.29%

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