After the shock and surprise of Monday’s rout, sparked by fears that increasing cases of the Delta virus could cause the global recovery to slow, European markets managed a modest rebound yesterday.
The sharp increase in cases of the virus remains a real and current danger, especially for countries where vaccination rates are well below 50%. In the case of the UK and the US, where immunization levels are much higher, markets believe the vaccine wall is holding the virus back enough not to overwhelm the respective health systems of the two countries.
There were also concerns that people with a double bite could also be infected with the variant, which raised concerns about the effectiveness of the vaccine, but no vaccine is ever 100% effective, and as long as it keeps the person alive. infected outside the hospital, he will still have done his job.
Yesterday’s US session saw the Nasdaq and S & P500 erase all of Monday’s losses, leading to a decent rebound for Asian markets this morning.
Due to the strong US finish yesterday, we can expect European markets to open a bit higher this morning, although we still have some way to go to erase losses from last Friday’s close.
The last few days have seen the pound weaken quite sharply, largely due to concerns over the history of recovery in the UK, which has been the victim of recent government missteps in terms of communications policy and economic reopening. The extent of the fall in the pound will likely depend on the ability of the vaccine wall to contain the worst effects of rising Delta infection rates in the days and weeks to come. A semi-competent government that can deliver clear messages wouldn’t hurt either.
After seeing the UK economy post its biggest post-war annual deficit of over £ 300bn in the last fiscal year, 2021 started off the same way it ended the last, so that public sector borrowing in April was £ 28.3 billion adjusted and 8-month high.
With the initial easing of this year’s foreclosure, the number was a significant improvement over the April 2020 borrowing count which reached a level of £ 47.8 billion, but it was still the second largest April number of all time, with the economy still in a partial state of lockdown, although restrictions at this point are starting to be relaxed.
The figure of £ 23.6 billion that followed in May was a further improvement and lower than many estimates put forward in the March budget. The improvements were helped in part by various companies returning their vacation money, as well as higher-than-expected consumer spending.
With the number of claimants declining again in June to 5.8% from 6% in May, it is highly likely that we may see further reductions in leave payments as more companies are bringing in employees as restrictions are easing further in retail and hospitality, although travel will continue to lag.
Looking at today’s June figures, it is likely that we will see a further improvement to £ 21.5 billion, which would again be lower than the same period a year ago, while tax revenues are also likely to be higher with more businesses opened, although operating at a lower activity rate.
Many companies appear to have adapted well to some of the new ways of doing business and while government borrowing is expected to remain high for the remainder of the year, there is not much market concern about it. , although we are starting to hear new concerns about how it will all be paid for.
The biggest worry the Chancellor appears to be facing now is whether the current rise in infection rates is starting to crack the vaccine wall that has been erected over the past 8 months, and who, if it was. cracked, could mark a new wave of new fall lockdowns, just as the leave measures begin to unravel. The only bright spot seems to be the decline in gilt yields, which have fallen from peaks of 0.9% in May to less than 0.6% today.
EURUSD – new marginal low but still above the 1.1750 level. A move below 1.1750 reopens March lows at 1.1700. We need to break through the 1.1880 level to signal a move towards the 1.1975 area. A move below 1.1750 reopens March lows at 1.1700.
GBPUSD – Find support above the 1.3570 level and February lows for now, with a break below potentially opening a move towards the 1.3100 area. We need to get back above the 1.3800 level to stabilize and minimize the risk of further losses.
EURGBP – continues to tighten on the upside, with the risk of further gains towards 0.8700, we are now above the 0.8650 level. A return below 0.8640 suggests the possibility of a return to the 0.8580 area in the near term.
USDJPY – level 109.00 currently has decent cloud support. A fall to 109.00 opens the prospect of a move towards 108.20. We now have resistance in the 110.20 area.