Digital Assets consolidate whilst Risk appetite remains strong ahead of Non Farms Payroll. Oil awaits OPEC+ outcome

The main cryptocurrencies have displayed a positive performance so far this week, with Ethereum jumping 13.5% and Bitcoin up 5.7%. The main development in this space has been the acquisition by Deutsche Boerse of a two-thirds majority stake in Crypto Finance AG, the Swiss-based digital currency focused firm offering investment, storage and trading of crypto assets to professional clients. The widening of the involvement by professional investors in the crypto space was illustrated by the announced intention of Steve Cohen’s Point72 Asset Management to appoint the head of cryptocurrency business, as well as the beginning of crypto trading by George Soros’s family office. Risk assets have been performing broadly well this week, including into the month- and quarter-end on Wednesday and ahead of today’s key US payroll report. Market consensus for the monthly increase in NFP rose to 720K, from 700K earlier in the week, following the publication of strong ADP employment change data (692K ahead of 600K consensus), as well as lower than projected initial jobless claims (by 22K). The unemployment rate should continue to decline (from 5.8% in May).

S&P 500 set up a fresh all-time high yesterday of 4,320 after climbing 0.5% in a broad-based move that brought the week-to-date gains to just over 0.9%. Value stocks outperformed, with DJIA up 0.4% compared to a 0.04% increase in Nasdaq 100. All major European stock markets performed well yesterday, with Stox 50 up 0.4% and FTSE 100 rising 1.3%. The DXY dollar index rose 0.2% yesterday and 0.9% since the start of the week, as investors considered implications of the worsening Covid-19 infections in a number of key economies. Most EM currencies weakened against the dollar, including the currencies of oil producers (such as the rouble which fell 0.5% yesterday and 1.7% over this week). The only exception among the EM currencies was the Turkish lira that has moved off its recent lows. The US Treasury yields have stayed broadly flat this past week, with 10-year yields hovering around 1.47% p.a. Gold has recovered some losses but was flat since the start of this week. Oil prices rallied strongly ahead of Thursday’s scheduled OPEC+ meeting, driven by preliminary reports about a smaller than anticipated increase in output. Brent prices rose 1.6% and WTI jumped 2.4% to $75.2/bbl on Thursday on a report that Saudi Arabia and Russia have already agreed on raising the total output by 400K/bbl per day, rather than 500K/bbl discussed initially. However, no agreement was announced on Thursday, causing the main OPEC+ meeting to be brought back by a day, until Friday. Reportedly, the main objections came from the UAE oil delegate as his country has reportedly been seeking an increase in the baseline for its own output cuts, to reflect the higher capacity installed recently. The market structure of the oil curve had strengthened, with timespreads moving deeper into backwardation.

Manufacturing PMI readings for June were mixed, with a composite global PMI index (collated by JP Morgan) declining to a 3-month low of 55.5, compared to 56.0 in May. Specifically, declines in PMI from the preceding month were registered in China (Caixin, to 51.3), India (48.1), Russia (49.2), US (ISM, 60.6), Conversely, PMI readings for June rose in Germany (to 65.1), France (59.0), Turkey (51.3), Brazil (56.4), Mexico (48.8). Notably, the ISM new orders component in the US declined only marginally (from 67.0 to 66.0) and was above consensus expectation.

The IMF has failed to endorse a potential reduction in Russia’s inflation target. The head of the IMF mission to Russia said at a finance conference that Russia’s keeping of its policy objectives throughout the recent crisis period has served the country very well and that a reduction in its inflation target (at 4% currently) may lead to serious consequences in case of attempts to change policy in response to increased volatility. A senior Bank of Russia official said earlier yesterday that the CBR was planning a detailed review of its monetary policy setup, including a potential reduction in the inflation target. Inflation in Russia rose from 2.3% on the eve of the first Covid-19 outbreak in February 2020 to 6.2% in early June 2021.