Equity markets in Europe and the US gained ground yesterday despite the negative backdrop.
The Covid-19 fears were doing the rounds as several countries around the world are having fresh struggles with the health crisis. Nations that reopened their economies a number of months ago, such as Spain and Italy, enjoyed a rebound in economic activity, but they are now paying the price in terms of the infection rate and tighter restrictions.
At the weekend, the US and China were supposed to have a meeting to discuss their trade deal, but it didn’t go ahead, and to make matters worse, another date to hold the discussions was not selected. On Friday, President Trump signed an executive order that will force TikTok to sell its US business within 90 days. The US administration cited national security as grounds for the move. TikTok is a subsidiary of China’s Bytedance, so that’s a factor behind the poor relationship between the two largest economies in the world.
The NASDAQ 100 set another record high last night as tech stocks continue to outperform. The S&P 500 gained 0.3%, while the Dow Jones closed a little lower. The difference between how the indices faired, highlights the dominance of the tech sector.
Equity markets in Asia are mixed as US-China tensions ticked up again. The US government will impose further restrictions on the Chinese telecommunications group Huawei – its access to commercially available chips will be reduced again. The Trump administration fear Huawei is essentially an arm of China’s ruling communist party. European indices are expected to have a quiet start.
It was reported that Mike Meadows, the White House Chief of Staff, has not spoken to Nancy Pelosi - the speaker of the House of Representatives - this week, so there is little in the way of hope for a coronavirus package being brokered soon. At the moment, the argument over the US postal service seems to have taken centre stage. The service is experiencing delays as it is in need of a capital injection, which is where the government might come into play. There are some concerns the Trump administration wants to keep the service operating at a slow pace so it will not be fit to handle a huge wave of postal votes at the Presidential election in November.
In light of the renewed health concerns and the worries about tougher restrictions being introduced again, there are fading hopes that there will be a V-shaped recovery and yesterday’s New York Fed manufacturing report added to the mix. The August update was 3.7, and that majorly undershot the 15 forecast that economists were expecting. Keep in mind, the July reading was 17.2. It is possible that last month’s metric was a classic example of pent-up demand and now things are starting to return to normal.
Yesterday was another bad day for the US dollar index. The greenback enjoyed a rebound on the back of the July jobs report that was revealed at the start of the month, but it has turned lower again as the wider bearish move has set-in. The dollar has come under pressure lately as Republicans and Democrats are still bickering about the finer details of the stimulus package that is required to inject new life into the US economy.
The continued weakness in the US dollar gave a big boost to gold, silver, platinum, copper and palladium yesterday as they are all traded in the currency. Gold and silver have experienced a lot of volatility recently as the metals endured sharp declines at the beginning of last week, but since Wednesday they have been turning higher. The rally in industrial metals such as copper and palladium implies that dealers were in risk-on mode.
Metals weren’t the only commodity to gain ground yesterday as oil rallied too. OPEC+ confirmed that there was roughly a 97% compliance rate with the record production cut levels in July. The group of oil producing nations sometimes don’t all stick to the plan when it comes to proposed changes to output, but it is clear they mean business. Lately the relationship between China and the US has been under pressure but companies that are controlled by the Beijing authorities are set to increase their oil imports form the US. The firms have booked tankers to transport 20 million barrels of US oil, covering August and September.
At 1.30pm (UK time). The US will publish the latest building permits reports for July, and economists are expecting it to be 1.32 million, and that would be an increase from the 1.25 million posted in June. The housing starts will be released at the same time, and they are tipped to be 1.24 million, up from 1.18 million in the last report.
EUR/USD – has been in an uptrend since April and if the bullish run continues it should target 1.2000. A pullback might find support at 1.1696 or at the 1.1600 zone.
GBP/USD – while it holds above the 1.3000 mark, the bullish trend that has been in place since late June should continue, and a break above 1.3200 should put 1.3284 on the radar. A move back below 1.3000, could see it target the 1.2800 zone.
EUR/GBP – it has been largely range bound in August, but while it holds above the 0.9000 mark, the bias should remain to the upside. Resistance might be found at 0.9157. The mid-July low of 0.8938 might act as support.
USD/JPY – the rebound from late July to mid-August seems to be turning over on itself and while it remains below the 50-day moving average at 106.74, it is likely to lose further ground. 105.30 or 104.18 might act as support. A rally might encounter resistance at 108.10, the 200 day moving average.