Stimulus Snag, China Chugs Along

08/05/2020 6:00 am EST

Focus: FOREX

Adam Button

Co-Owner and Managing Director,

It’s a busy week for economic numbers, but markets will focus on negotiations over the next U.S. stimulus deal, reports Adam Button.

Backsliding Coronavirus data and scant progress on an extension of U.S. coronavirus stimulus are the themes early in the new week. Markets will await the ongoing US negotiations regarding the next stimulus ahead of key ISM data and the Employment Situation Report on Friday.

The British pound (GBP) was the top performing currency last week while the New Zealand dollar (NZD) lagged. Early on Monday the China Caixin PMI rose to the highest level since 2011. U.S. manufacturing ISM is due next. Here is another look at those August seasonals.

Global Pandemic News

The area around Melbourne, Australia moved into a phase 4 lockdown on the weekend that includes 8 p.m. curfews and no leaving the house except for essentials. It comes after officials revealed 760 virus cases in the region where they don't know the source of the infection. The new rules will last for six weeks.

The Philippines also put on stronger restrictions in Manila and nearby provinces with cases spiking. There is backsliding elsewhere on the virus as well so this could be a preview of what's to come. There's increasingly clear evidence that shortly after restrictions are eased, cases begin to pick up. That paints a back-and-forth picture of the recovery rather than the V-shaped rebound some called for.

Economic Indicators

The economy will be a big focus in the week ahead with the jobs report including U.S. non-farm payrolls coming Friday. The consensus has been sliding from 2 million additional jobs created and now sits at 1.578 million. Goldman Sachs was out with a notable weekend call, saying its real-time metrics suggest 1 million jobs lost.

In China, however, the picture is better as officials aggressive clamp down on outbreaks. The better-than-expected PMI Monday is a reminder that it was massive Chinese stimulus that dragged the global economy out of the rut in 2009.

Note that after the big runup in Chinese equities to start July the market has consolidated and may have carved out a double bottom.

Although economic data will be important this week, it will be overshadowed by U.S. government stimulus negotiations. The only thing both parties can agree on so far is another $1,200 check. The longer the stalemate goes on without a sign of progress, the more likely markets are to sour. Keep a close eye on 10-year Treasury note yields and a potential break of 0.53%.

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