Stock markets on both sides of the Atlantic yesterday enjoyed bullish runs. 

The buying was largely driven by talk that President Trump would earmark another $1 trillion for infrastructure spending. A report suggested the US leader wants to beef up spending on rail, road and 5G. The motivation for the scheme would be to try and stimulate the economy.

The lockdown has had a terrible impact on the US economy and a huge round of infrastructure spending would help it emerge from its rut. The Federal Reserve and the US government have taken measures to alleviate the financial pain of the pandemic, but it would seem that even more money will be dedicated to turning the economy around.

President Trump is seeking re-election in November and he wants to be seen to be in control of the health crisis and the economy so he is likely to do whatever it takes to spur economic activity. In the past week, there has been an increase in the number of Covid-19 cases, which is a direct result of the lockdown restrictions being loosened. The rise in infection rates sparked a sizeable sell-off in stocks on Thursday, and sentiment was weak at the beginning of Monday’s trading session. Some people might think the timing of the report about a potential $1 trillion infrastructure scheme was very convenient. Some people might view it as a way of trying to drown out the negative news of the higher infection rate.     

As far as the health emergency is concerned, there was some positive news yesterday. It was reported that Dexamethasone, a low-dose steroid, helped reduce the fatality rate of Covid-19 patients. The trial is headed up by a team from Oxford University. Dexamethasone is relatively cheap and is readily available so it could prove to be an extremely useful treatment. The news about the drug also lifted the sentiment in stocks.

On Monday, it was announced the Fed would start to purchase individual corporate bonds, and that would be a change of pace for the US central bank as it already bought bond exchange traded funds (ETFs). The announcement helped US indices push higher on Monday. Yesterday, Jerome Powell, the Fed chief, said the corporate bond-buying programme could be tapered if the market function improves. The central banker also cautioned about the timing and the scale of the recovery. The commentary in relation to the corporate bond purchases was a factor in the US equity benchmarks closing off the highs of the session.

Towards the end of the European session it was reported that Beijing will close all schools on account of a jump in Covid-19 cases. It didn’t derail the rally in stocks but traders will monitor the situation.  

Stock markets in Asia are a little lower as traders have concerns about what is going on in Beijing in relation to rising infections. Yesterday the IMF warned the decline in the global economy in 2020 will be far worse than the 3% contraction it projected in April. Political tensions between China and Indian, as well as North and South Korea, are playing on traders’ minds too. 

The US dollar index gained ground yesterday on the back of the record retail sales report. The update showed growth of 17.7% in May. The reading was in stark contrast to the decline of 14.7% that was registered in April – the height of the lockdown. The update shows there is appetite for spending, but it is worth noting the reading was coming from a low base.

The oil market pushed higher yesterday as the IEA now predicts that demand for oil in 2020 will be 91.7 million barrels per day, which was an increase from the projection made in May of 91.2 million barrels per day. As economies continue to reopen, it is likely that demand for oil will tick up too.

At 7am (UK time) UK CPI will be posted and the headline reading is tipped to 0.5%, down from 0.8% in April. The core reading is anticipated to be 1.3%, and that would be a slight fall from the 1.4% registered in April.

The final reading of eurozone CPI will be released at 10am (UK time). The headline figure and the core reading are tipped to be 0.1% and 0.9% respectively.

US building permits and housing starts are expected to be 1.22 million and 1.09 million respectively. The reports will be posted at 1.30pm (UK time).

The EIA report will be announced at 3.30pm (UK time) and US oil stockpiles are anticipated to increase by 250,000 barrels.

Jerome Powell will testify before the House Financial Services Committee today.    

EUR/USD – has been pushing higher since early May and if the bullish run continues it might target 1.1495. If there is a pullback, it might find support in the 1.1200 region, and a move through that area, could see it target 1.1025, the 200 day moving average.  

GBP/USD – Thursday’s daily candle has the potential to be a bearish reversal and it might target 1.2424, the 50-day moving average. A move higher could run into resistance at 1.2684, the 200-day moving average.   

EUR/GBP – has been in an uptrend for over one month and if it retakes 0.9054, it might target 0.9239. A move lower might find support at 0.8845, the 50-day moving average.  

USD/JPY – has been driving lower in the past few sessions and support could come into play at 106.00. A rebound might run into resistance at 108.42, the 200-day moving average. 

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