Global stocks advanced higher on Wednesday on rising optimism from the reopening of economies as most countries appear to have gone through the worst of the pandemic and the major developments towards creating a vaccine.
Secretary of State, Mike Pompeo, said he certified to Congress that Hong Kong no longer enjoys a high degree of autonomy from China. It is a key development as Hong Kong is at risk of losing its special trading status with the US. As one of Asia’s biggest financial hubs, the ramifications could be severe.
Investors are pushing stocks higher before the brewing tensions between the US and China force bears to make a comeback. Geopolitical tit-for-tat rhetoric is dominating the headlines. Amid a mix of good and bad news, an environment of caution will continue to prevail.
Major US equity indices closed in positive territory – the S&P500 closed at a 12-week high above the 3,000 level:
- Dow Jones Average Industrial gained 553 points or 2.2% to 25,548.
- S&P 500 added 44 points or 1.5% to 3,036.
- Nasdaq Composite rose by 72 points or 0.8% to 9,412.
The tech-heavy index underperformed compared to its peers. Twitter and Facebook retreated following President Trump’s threat to “strongly regulate” or even “shut down” social media platforms, after Twitter applied a fact-check to a number of his tweets this week.
In the FX space, major currencies were mixed against the US dollar as sentiment fluctuated with geopolitical headlines. Despite the rally in equities, commodity-linked currencies eased from highs; dragged by weaker oil prices.
The Antipodeans mostly left at the broader sentiment of the markets fell from session lows. As of writing, both the AUDUSD and NZDUSD pairs are trading around the 0.66 and 0.61 levels, respectively.
The European Commission has put forward its proposal for a major recovery plan to “Repair and Prepare for the Next Generation”. In total, the European Recovery Plan will put down €1.85 trillion to help kick-start the Eurozone’s economy and ensure Europe bounces forward. The EURUSD pair edged higher above the 1.10 level but struggled to maintain the momentum as the recovery plan requires the unanimous backing from all the 27 nations in the bloc.
The hesitations are mostly coming from Europe’s frugal four which are reluctant to the mutualisation of debts. The Commission’s proposal is a mix of grants and loans which is a starting point for negotiations. The EURUSD pair remains range-bound in anticipation of a compromise and the unity of EU members.
The GBPUSD pair dropped sharply by almost 100 pips on escalating tensions and Brexit-related news. The UK Prime Minister reiterated its intention to not extend the transition period. Negotiations with the EU will resume next week.
Geopolitical tensions and the doubts that Russia could be sending mixed signals about its commitments to deep production cuts weighed on the oil market. On the supply side, the American Petroleum Institute reported a huge build of 8.731M (May 22) compared to a previous draw of 4.8M.
Crude oil futures retreated on Wednesday as the increase in inventory builds and the US-China tussle are putting pressure on the energy markets. As of writing, WTI Crude oil (Nymex) and Brent Crude (ICE) are currently trading at $31.55 and $34.74, respectively. The EIA report will be eyed for fresh training impetus.
Amid a mixed bag of positive and negative headlines, the yellow metal is struggling to find a firm direction. Investors are cautiously bullish which is helping the XAUUSD pair to remain above the $1,700 level.
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