Virus Cases and Improving Economic Data
Rising Virus Cases
As we step into the third quarter, we see an improvement in fundamentals and hopeful signs of recovery but the rising number of virus cases in certain regions and the risk of a second wave of infection remain the element of caution. As of writing, the number of coronavirus cases worldwide has passed 10.9 million.
Rising Virus Cases
Despite the growing fears of the resurgence in coronavirus cases, investors continue to push global stocks higher on the back of improving economic data, positive vaccine developments, massive fiscal stimulus, ultra-low levels of interest rates and central banks interventions.
US Share Market
In the US, rather than a “second wave”, the US infectious disease expert, Dr Anthony Fauci believes that the country is still in its first wave. The situation is alarming and is forcing certain hotspot states to reimpose lockdown restrictions. A combination of promising vaccine updates, manufacturing and services PMI and jobs data have continued to support the appetite for riskier assets. Ahead of a holiday-long weekend, major US equity benchmarks have slightly retreated from weekly highs but remained in the green for the week bolstered by optimistic signs of recovery.
Australian Share Market
Similarly, the Australian share market is poised to finish the week on a strong note led by the outperformance of the technology sector. As of writing, all the sectors were in the green for the week and the index has even passed the 6,000 mark before retreating slightly.
Looking at the best and worst performers, Afterpay shares hit a fresh record high and briefly hit $70 on Friday’s open while Adbri Ltd’s share price took a massive hit and fell by more than 22% on Friday. Adbri announces that its subsidiary, Cockburn Cement Limited, has been informed by Alcoa of Australia Limited(Alcoa) that it has elected not to renew its current lime supply contract expiring on 30 June 2021. The contract constitutes approximately $70 million in annual revenue for the Group.
In the forex market, the improvement in risk appetite has kept the safe-haven currencies on the sidelines. The British Pound and the commodity-linked currencies were among the best performers against the US dollar.
On the economic front, overall PMI figures have brought some reassurance that economic activity is improving.
United States: Nonfarm payrolls rose to 4.8 million, above consensus for 3.2 million, and from a revised 2.7 million in May. US payrolls advanced for the second month indicating that the labour market is making progress.
The unemployment rate declined to 11.1% from 13.3%, consensus saw 12.5%. Average earnings fell 1.2% on the month. Initial jobless claims slipped last week to 1.43 million from 1.48 million. Continuing claims edged up to 19.3 million from a revised 19.2 million.
Australia: The AUS Retail Sales were among the most important leading economic data for the week. The Australian retail turnover rose above expectations by 16.9% in May 2020 following a fall of 17.7% in April 2020. As of writing, the Aussie dollar is trading higher at 69.25 US cents.
UK: UK GDP in volume terms fell by 2.2% in Quarter 1 (Jan to Mar) 2020, revised downwards by 0.2 percentage points from the first quarterly estimate; the largest fall in UK GDP since Quarter 3 (July to Sept) 1979 when it also fell by 2.2%. The UK recorded its largest quarterly fall in GDP for over 40 years. Despite dismal data and Brexit-related jitters, the British Pound bolstered higher against the US dollar on the back of the broad optimism and a weaker greenback.
The oil market found some support on the economic recovery narrative and bullish inventory reports:
- American Petroleum Institute reported a larger-than-expected crude oil stock draw from previous 1.749M to -8.156M in June 26
- As per the EIA, commercial crude oil inventories in the United States decreased by 7.2 million barrels in the week ending June 26th
As of writing, WTI Crude oil (Nymex) and Brent Crude (ICE) were trading higher at $40.44 and $42.93, respectively.
As risk sentiment improves following upbeat economic data and positive vaccine updates, Gold pared some of its recent gains. However, the rising number of virus cases in certain regions and the risk of a second wave of infection remains a major concern. As of writing, the XAUUSD pair is currently trading around the $1,775 mark.
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