By Deepta Bolaky
Investors weighed the positives against the negatives this week. Economic data and earnings reports brought reassurance while the US stance on Chinese companies – TikTok and Wechat sparked fears that the tensions between the two countries may spiral into a new cold war.
As the week comes to an end, attention will switch to Nonfarm Payrolls and negotiations on the second coronavirus package.
The improvement in the economic data continues to provide support to the stock market despite the mounting number of COVID-19 cases. European bourses underperformed compared to their US counterparts following further travel restrictions, mixed earnings reports and a cautious BoE.
Global equities index almost recovers all of its 2020 losses on the back of the amount of stimulus being injected in the pandemic-induced economy. As the week comes to an end, investors are eyeing the US stimulus package following hopes that the Congress will agree on the second round of stimulus before the month-long break.
The US tech sector continues to outperform reiterating the resilience of the large-cap tech companies. The future gains in the stock market will likely be dependent on Fed policies and Congress’ fiscal stimulus policies.
One company which drew attention this week was Sea Ltd. The leading internet platform in Southeast Asia and Taiwan outshines Tesla and the FAANg group of companies and emerges as the world’s best performing large-cap stock.
In the forex market, major currencies were stronger against the US dollar. The greenback struggled to find an upside momentum dragged by concerns over the mounting number of infections, uncertainty around the next round of stimulus package and escalating tensions between the US and China. Higher-yielding currencies are amongst the best performers.
Source: Bloomberg Terminal
On the economic front, investors were pleased with the improvement in the manufacturing sector:
However, in the face of new lockdown restrictions, investors will likely keep monitoring the data over a couple of weeks to assess if there is any reversal in the recovery. In the US, ADP jobs report shows that the private sector added only 167,000 jobs in July which may be a sign that the US economic recovery may be at risk of reversing:
The US dollar remained on the backfoot against its counterparts ahead of the much-awaited Nonfarm Payroll report.
Crude oil prices edged higher on promising manufacturing data and bullish weekly oil reports:
As of writing, WTI Crude oil (Nymex) and Brent Crude (ICE) were trading higher at $41.71 and $44.88, respectively following the turnaround in risk sentiment.
Gold reached a new milestone. Fears of a second outbreak and new forms of travel restrictions are overshadowing the recovery outlook. Gold is on an unstoppable rally despite the improvement in the economic data. Virus woes and escalating tensions between the US and China over the executive order to ban Chinese companies, TikTok and WeChat are forcing investors to seek some safety with safe-haven assets like gold.
The precious metal is set for the best weekly run in more than a decade. After reaching a high of $2,072.25 earlier this week, the XAUUSD pair is currently trading just below the $2,060 mark.
Where is the next target level?
By Deepta Bolaky
|Monday, 10 August 2020
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