Risk appetite stabilised during Thursday despite underlying coronavirus concerns as new US cases hit a record high.

Risk appetite stabilised during Thursday despite underlying coronavirus concerns as new US cases hit a record high. European and US equities posted net gains with sentiment boosted by a relaxation of US Volcker rules, although there was still underlying caution.

The dollar held firm with EUR/USD unable to make headway, although there was EUR/USD support below 1.1200 amid doubts over US fundamentals. Sterling was little changed overall as intra-day gains faded with a focus on trade talks.

ECB minutes from the June meeting stated that monetary policy measures and fiscal response had reduced downside risks. The minutes reiterated that the bank was ready to adjust all instruments as necessary and that the PEPP emergency bond-buying programme was proportionate to counter serious risks to price stability.

Council member Mersch stated that PEPP must remain a temporary crisis instrument and that the full amount might not be needed if market tensions eased sufficiently.

US initial jobless claims declined to 1.48mn in the latest week from 1.54mn previously, although this was above consensus forecasts of 1.30mn. Continuing claims declined to 19.52mn from 20.29mn which suggested there had been further limited success in returning to work or finding new jobs, but claims remain extremely high.

Durable goods orders rebounded 15.8% for May following the revised 18.1% decline for the previous month and well above consensus forecasts of 10.9%. Underlying orders increased 4.0% for the month after an 8.0% decline the previous month.

The final first-quarter GDP reading was unchanged at -5.0% with consumer spending declining 6.8% while the trade deficit widened on weak exports.

The dollar overall held a firm tone, especially against the Canadian dollar, with defensive US currency support also a significant factor as EUR/USD tested support below the 1.1200 level. The pair edged higher to the 1.1220 area on Friday as the dollar retreated from its best levels.

Overall confidence in the US fundamentals weakened further, but this was offset by potential defensive demand given unease over the global risk profile amid nervous market conditions.

Euro-zone equities were able to secure a limited recovery on Thursday which curbed potential yen demand, although US futures remained in negative territory. Overall, USD/JPY was able to consolidate above the 107.00 level with narrow ranges prevailing as has been the case for much of June.

There were further underlying concerns over US coronavirus developments during the day. The Governor of Texas temporarily halted the state re-opening measures as infections and hospitalisations continued to increase. The US overall reported a record increase in new infections of close to 40,000 for Thursday, reinforcing concerns over near-term trends even though president Trump reiterated that there would be no renewed economic closures. US equity markets rallied in late trading with sentiment boosted by a relaxation of the Volcker rules for the US financial sector and USD/JPY was able to hold just above the 107.00 level.

Comments from Bank of Japan Governor Kuroda indicated that the central bank is likely to cut its economic projections at the July meeting, increasing pressure for further policy easing. Equity markets were little changed overall with USD/JPY holding steady amid potential position adjustment into the weekend.

The CBI retail sales index recovered to a reading of -37 for June from -50 previously and in line with consensus forecasts. Retailers were, however, pessimistic over the outlook with the July reading expected to be at -48. According to the survey most retailers expect sales to be far below where they were this time last year despite intensive efforts to make sure they are safe and open. Stock levels also remain high, increase the need to reduce inventory.

Sterling did recover some ground ahead of the New York open, but headway was limited and progress was limited by a further dip in yields with the 5-year yield at a fresh record low of -0.06% while the 10-year yield dipped to 1-month lows.

UK chief negotiator Frost confirmed that the next round of talks next week would be on a face-to-face basis and smaller with a more focussed stance. He stated that the UK did not anything to undermine the EU single market, but reiterated that national sovereignty was not up for discussion and rejected any EU reprisal measures.

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