Markets Outlook: Virus headlines fill the void of an otherwise vacant economic calendar

This week's economic calendar is relatively vacant and the primary focus will remain virus trends and high-frequency data such as jobless claims. While the June employment report meaningfully exceeded expectations, the market response was likely tempered somewhat by last week's mixed jobless claims data. 

While Wednesday's Beige Book is likely to note some improvement in economic activity, I think the report is rendered slightly less meaningful given that Texas, Florida and California have recently rolled back the reopening of bars and restaurants, hence the pace of recovery in food services and accommodations could slow near-term.

Despite a better-than-expected June jobs report, labor market progress since the first half of June is showing some early signs of stalling. As noted above, much of the increase in continuing claims came from states that have demonstrated deteriorating Covid-19 trends over the past couple weeks, presenting a significant risk to the recovery. 

While the majority of this week's economic data should show ongoing improvement, it’s more important to focus on the high-frequency data – especially the results of the July 4th mobility data to gauge how consumers are reacting to the rise in the Covid-19 fear factors that still sit at the top of the headline reels.

Discussions are starting to surface on whether the US will vote for either a Trump or Biden presidency. While it’s too early to price in a ton of election risk, forex optionality behaviors have picked up around the November election date. I’m borrowing a page from Deutsche Bank’s Alan Ruskin as these views are an echo of mine:

"President Trump to be re-elected he would be regarded as mildly positive for the USD, or less harmful for the USD, when compared to Biden on three main accounts: i) his trade policies will keep the CNY and importantly also the EUR, under a degree of tariff threatened pressures; ii) on the BOP trends, it would support a further adjustment in the bilateral trade imbalances with China in particular, and a readjustment of FDI flows back to the US. iii) Biden's likely reversal of Trump's tax reform that is Congress dependent is in the initial instance likely to be harmful to US equities relative performance."

As for Asia next week, since we’re back in the “data does not matter” stage again, the local sentiment will likely remain anchored to the ongoing Covid-19 affairs in the US market and what the ultimate policy reaction will be if the US economy struggles to recover beyond the first stage liftoff.

Reprinted from fxstreet，the copyright all reserved by the original author.