Equity Markets
European and US stocks edged higher on improving manufacturing data, earnings reports and hopes of stimulus packages despite rising number of coronavirus cases and geopolitical tensions. Risk sentiment remains fragile and dependent on the course of the virus. However, in the meantime, investors are relying on stimulus packages and government interventions.
Wall Street ended in positive territory driven by a tech-rally and the hopes that the second stimulus bill will be passed before the month-long recess:
- Dow Jones Industrial Average gained 236 points or 0.9% to 26,664.
- S&P 500 rose by 23 points or 0.7% to 3,295.
- Nasdaq Composite finished by 158 points or 1.5% higher to 10,903.
Currency Markets
In the FX space, the US dollar appreciated in the European and US session but pared some gains in the final trading hours. The US dollar index which tracks the performance of the US dollar against a basket of currencies ended relatively flat on Monday.
On the economic front, the improvement in the manufacturing data buoyed risk sentiment. However, it should be noted that in the face of new lockdown restrictions, investors will likely keep monitoring the data over a couple of weeks to assess if there is a reversal in the recovery:
- ISM manufacturing index can better-than-expected at 54.2 vs. 53.6 estimates. This figure indicates expansion in the overall economy for the third month in a row after a contraction in April, which ended a period of 131 consecutive months of growth.
- Germany Markit manufacturing PMI registered 51.0 in July, up from 45.2 in June. This was the first reading above the 50.0 no-change mark since December 2018 and represented a further recovery from April’s recent low of 34.5, recorded at the height of lockdown measures related to the COVID-19 outbreak.
The euro area’s manufacturing economy recorded its first growth in a year-and-a-half during July as output and demand continued to recover in line with the further easing of restrictions on activity related to the global coronavirus disease (COVID-19). After accounting for seasonality, the IHS Markit Eurozone Manufacturing PMI®registered 51.8, up from 47.4 in the previous month and an improvement on the earlier flash reading.
Commodities
The improvement in the manufacturing data and overall optimism on Monday helped crude oil prices to bounce back from Monday lows. We expect traders to keep monitoring weekly oil reports and the spread of the virus for further trading impetus. As of writing, WTI Crude oil (Nymex) and Brent Crude (ICE) were trading around $40.61 and $43.69, respectively.
Gold
Gold has been on an unstoppable rally recently as investors are hedging with safe-haven assets given the ongoing uncertainty and geopolitical tensions. The fears of a second wave and the prospects of rolling back reopening measures are overshadowing the recovery outlook. The path of the global economy remains dependent on the course of the virus. The improvement in risk sentiment has toned down the momentum.
However, the fundamentals for driving gold higher remain bullish. In the face of uncertainties, gold is gaining momentum due to a number of factors ranging from the global economic crisis, US election, stimulus packages, continued spread of the virus, geopolitical tensions between US and China, and a fragile rally in the stock market among others. As of writing, the XAUUSD pair is currently consolidating in a range around the $1,970 mark.
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