(19 JUNE 2020)DAILY MARKET BRIEF 1:Consolidation as retail sales jump

Asian stocks are set to close the week on a positive note, after having swung between hope of post-Covid recovery and fear of a second wave contamination this week. US equities were mostly flat on Thursday. Nasdaq led gains as investors felt more comfortable buying tech stocks, if they were to buy anything, amid record surge in new Covid-19 cases in some states in the US.

Meanwhile, Donald Trump said in a tweet yesterday that ‘the US certainly does maintain a policy option, under various conditions, of a complete decoupling from China.’ His words didn’t impact the market mood, though a complete decoupling between the US and China would significantly hit the US companies, already battered by the pandemic.

Also, yesterday’s data was little satisfactory. The weekly jobless claims in the US rose 1.5 million last week hinting that business reopening didn’t have a flourishing impact on jobs just yet.

In Australia, the retail sales jumped by a record 16.3% m-o-m in May as consumers rushed to stores following the easing of Covid-19 lockdown measures. The Aussie remained little changed against the greenback. But from a technical perspective, we are about to see a formation of golden cross on the AUDUSD daily chart, where the 50-day moving average is about to cross above the 200-day moving average. The latter bullish formation could enhance tactical long positions in AUDUSD and encourage another move above the 0.70 mark.

British retail sales soared 12% versus 6.3% expected by analysts and -18.1% printed a month earlier.

A side note before we move forward. While the post-Covid jump in global retail sales should remain short-lived, the normalization in economic activity and rising oil prices will certainly have a significant inflationary effect across the world economy. If the recovery doesn’t follow the pace of the pickup in consumer prices, the central banks may find themselves stuck with ultra-unorthodox policies, a thin margin for more action, rising inflation and high employment. In summary, the stagflation is the greatest risk of today’s ultra-loose monetary policies and may hit the emerging markets heavier than the G10 economies.

By Ipek Ozkardeskaya