This week has seen another week of indecision as the market is once more torn between hopes of an economic recovery on the one hand and rising COVID-19 cases on the other. The US is particularly hard hit and achieved a somber milestone of over 3 million virus cases this week. Furthermore, a number of US states reported record numbers of new infections. More than 130,000 US citizens have now died from COVID-19. The worry articulated by the Fed is that these rising cases will further slow down the US economy. Expect further days of market indecision until there is some clear direction on which side will win out. Will it be economic recovery or a re-tune to COVID-19 shutdowns?

Key events from the past week

  • UK mini-budget: Fiscal stimulus for the UK, Wednesday, July 08. A range of expected schemes was introduced by the UK. These included support for employers, raising the stamp duty threshold, as well as cutting VAT for hospitality and travel. However, the GBP barely reacted and Brexit remains the UK’s top concern.
  • AUD: Interest rate decision, Tuesday, July 07. The RBA left its target rate unchanged at 0.25% this week and kept its 3yr bond yield target at 0.25% as expected. The RBA stated it is not looking to raise it’s cash rate until progress is made towards full employment and inflation within its 2-3% range. This may take some time.
  • Gold: Breaks above $1800, Wednesday, July 08. Gold broke above the $1800 level this week. The global low-interest-rate environment suits the precious metal. In the last three recessions, gold has gained in value and this latest downturn is keeping with that trend seeing gold break above November 2011 highs.

Key events for the coming week

  • CAD: Interest rate decision, July 15. The BoC is expected to keep rates unchanged next week. The OIS futures contracts are pricing in a 94% probability of no change. However, if there is a rate cut expect immediate CAD sellers.
  • EUR: Interest rate decision, July 16. The ECB will meet next week and the majority of analysts are expecting no change to the main rate. A key mover for the euro next week will be whether the European Recovery Fund is agreed by member states. If the fund is rejected then expect immediate EUR sellers.
  • US second wave fears. Sixteen states have posted record daily case counts this month alone and cases are now rising in 40 states across the US. Will the US economy starts shutting down again?