This week has been all about the push/pull between stimulus and second wave fears, so with the Fed giving the nod toward easy money as far as the eye can see, markets are finishing the week on a more constructive tone. US equities are 0.5-2.0% up while Europe saw 2.5% of outperformance so far.
And the risk tone was much enabled by a combination of COVID-19 vaccine optimism in addition to better than expected data globally.
China June Caixin services PMI 58.4 vs. 55.0 in May likely offset concerns the PBoC is slowing down liquidity injections amid signs of an economic recovery.
The PBoC is still easing, given overall economic conditions, sluggish external demand, and renewed US-China tensions. And the central bank is still providing liquidity via its re-lending quota and SME loan purchase scheme. However, this is far less than what the market is looking for, i.e., aggressive interest rate and RRR cuts.
Asia FX
USD/CNH and the rest of Asia fx are trading in pedestrian ranges. The market is still cautious after the passage of the Hong Kong bill. Overall positive risk sentiment and buoyant onshore equities and low US equity market volatility have kept an Asia FX bid alive again this week.
Gold
Gold is on the verge of testing the psychological $1800 level. The market has been brought higher by continued investor interest amid falling real rates and coronavirus concerns. The pullback from recent highs this week has likely been a positive for risk market double function of favorable vaccine trial results and robust economic data, signaling a continuation of the recovery. But it doesn't seem that anything really matters for gold where a decoupling from the inverse correlation with the USD or US stocks still sees gold higher, for example. Gold investors are likely looking through this economic sweet spot in the recovery anticipating a downswing in the data, which would then be accompanied by even more stimulus.
Stocks
Stock indices are already at the point of nothing matter as even if we get a run of bad economic news it is probably good news for the markets, as it could signal more government policy interventions.