Market Quick Take - May 22 2020

What is our trading focus?

What is going on?

Announcements from China National Party Congress meeting spook markets as the National Party Congress gets underway.The initial announcements coming from the party meeting set to continue over the coming weekshow that the Chinese government is set to abandon any GDP target due to the uncertainties caused by the Covid19 outbreak, that it will seek to write a new “security law” directly into Hong Kong’s Basic Law and thus bypassing the local legislature. Details are few on the nature of this new security law, but Hong Kong’s Hang Seng index was some 4.5% lower in late trading. China also announced it would seek to follow the terms of the US-China trade deal agreed back in January.

US-China tensions are rising as the US Senate is looking at a bill with bipartisan support to prevent Chinese companies from listing on US exchanges unless they certify that they are not controlled bythe Chinese government and allow audits by US authorities. Another Senate bill will look to censor Chinese individuals over claims of Chinese interference in Hong Kong.

US Weekly Initial Jobless Claims were higher than expected last week – at over 2.4 million and continuing claims rose above 25 million for the first time, troubling signs that the pace of US job losses remains high even as many regions of the US move to open up from Covid19 shutdowns.

The Bank of Japan announced a new lending programme for SME’s worth some JPY 30 trillion (around USD 280 billion) to help prevent smaller and medium size companies from failing due to the Covid19 crisis. It’s other interest rate and asset purchase policies were unchanged.

Fitch is catching up to Australia’s dire situationin a report citingAustralian household debt, at 186.8% of disposable income, is among the highest of 'AAA' rated sovereigns and poses an economic and financial stability risk. In the event that the current shock proves more persistent or leads to a structurally weaker labour market households' ability to service their debt could become impaired.

What we are watching next?

How we close the week of trading ahead of a three-day weekend for the US (markets closed Monday for Memorial Day) after intra-week strength this week in global equities and many EM currencies and pro-cyclical commodities. After a week that saw robust strength in risky assets, currencies and some commodities linked to hopes for a global growth rebound, the quality of this week’s closing level looks important for setting the tone and the level of concern as the market ponders the risk of a deteriorating US-China relationship.

Economic Calendar Highlights (times GMT)

• 1130 – ECB Publishes Account (Minutes) of latest meeting – for Europe, the focus is more on existential issues and the magnitude of coming fiscal programmes.

• 1230 – Canada Mar. Retail Sales – Canada is slow to release this particular data series, but could be interesting to measure versus the size of the shock in US sales for the same month (down 8.3%)