Stocks get on their feet ahead of earnings

Markets took a breather at the end of a turbulent week, which suddenly derailed hopes of a swift economic recovery and promoted self-realization that the vaccination program alone may not be enough to re-establish the pre-Covid normality.

The pan-European STOXX 600 is currently up by around 1.0%, having recouped a large share of yesterday’s losses, with consumer cyclicals, basic materials, and real estate enjoying the biggest gains. The index, however, is still on course to mark its second consecutive negative week.

In encouraging news, Airbus SE share jumped as much as 4.3% after the world's largest aircraft manufacturer and European mammoth reported a 52% growth in jet deliveries in the first half of the year – almost set to match its 2021 target.

In the US, futures tracking the S&P 500, Nasdaq 100, and Dow Jones are also flashing green, but the focus will remain on the tech giants as Amazon, Apple, Google and Microsoft managed to post fresh record highs yesterday despite the global swings in sentiment. Note that the earnings season will really kick off with big banks next week.

Global bonds gain ground but could the recovery continue?

While a fourth wave of infections seems to be picking up steam in several regions, traders will also keep a close eye on global bond yields. Although, there is no clear argument whether the latest freefall was underpinned by a sharp flow to safety or because of one-off technical reasons, the current Covid situation and the growing skepticism around plans of monetary tightening in the US and other key economies could keep downside pressures on yields and therefore on some currencies as well.

The 10-year Treasury yield was last trading above Thursday’s five-month low of 1.25% at 1.34%, while some recovery is also in progress in the European and Asian equivalents.

China's PBOC cuts RRR

China continued to hit the headlines today. Following threats of stricter rules on tech companies in the past week, which made investors wonder whether Beijing is trying to improve standards and reduce hazards, or curtail monopolies and data control, the central bank decided to slash its reserve requirement ratio (RRR) for banks by 50bps with effect from July 15.

This is the first cut since April last year, projected to release $154 billion in long-term liquidity. While the news created some caution about China’s growth, early birds managed to balance sharp reactions in the markets. The Australian dollar, which is sensitive to Chinese developments, continued to gain positive traction after the news, rising as high as 0.7477 against the dollar and 82.25 versus the yen. China’s Q2 GDP growth figures could be the next market mover for the aussie next week.

Canadian employment report mixed

Meanwhile in Canada, June’s employment report showed a similar pattern to the confusing US nonfarm payrolls, revealing a stronger-than-expected expansion of 230k in new job positions and an unexpected rise in the unemployment rate to 7.8%. In the aftermath, dollar/loonie faced a flash drop to the 1.2470 support level. Yet, the biggest challenge for the loonie is expected to be the Bank of Canada’s policy announcement on Wednesday as investors eagerly await another reduction in bond purchases and more details on a potential rate hike in the second half of 2022.

Major currencies

In other currencies, the rally in safe havens cooled down, with dollar/yen rebounding moderately near its 50-day simple moving average to trade slightly below the 110.00 level. Dollar/Swiss franc was almost flat at 0.9145 near yesterday’s lows.

Euro/dollar remained in the green territory for the second consecutive day, pushing for a close above the key 1.1860 – 1.1882 resistance area.

Weaker monthly GDP data for May, did not weigh on the pound, letting pound/dollar to move up to 1.3840. Price actions in pound/aussie and pound/kiwi are worthy to monitor in the coming sessions.