European markets are moving higher as investors are picking up momentum from Wall Street. We experienced a sell-off across all sectors of the S&P 500 index, except for technology. Nonetheless, U.S. stocks had one of their best August since 1984. Investors largely bet on the economic recovery in the U.S. For them, the rebound in the economic numbers, and falling coronavirus cases, have been good enough reasons to get involved in the markets.
Trough Was Formed Long Ago
By looking at the global stock market, it is quite clear that we experienced a trough for stocks during March, and ever since, the path of least resistance has been to the upside. The new record highs for the U.S. stocks have made some investors wary , and they believe that now is the perfect time to see some retracement in the U.S. stocks.
Summer Months Over
However, others argue that the summer months are over and trading volume should pick up as traders return to work after the summer holidays. But, something which could bring some obstacles for this coronavirus stock market rally, is the fact that soon we will see the start of the flu season.
With coronavirus here, which has infected more than 25 million people around the globe, this could worsen the pandemic situation. The hopes are that by that time we have a vaccine that should ease off any concerns about the pandemic.
The geopolitical tensions between the U.S. and China are still simmering in the background, as investors are concerned that China may block the sale of the U.S. operation of Chinese app, TikTok. Remember, Trump has already issued a strict deadline concerning the acquisition of TikTok’s U.S. operation. He warned that if an acquisition doesn’t take place by his defined deadline, he will ban TikTok in the U.S.
U.S. ISM Data
In terms of economic events, there is nothing more important this week than the U.S. NFP data, which is due on Friday. Today, we are going to get the first hint of this economic reading in the U.S. ISM manufacturing PMI number. The forecast is for 54.6, which is a slight improvement against the previous reading of 54.2. Any number that beats the expectations is likely to provide some help for the dollar index, which has been badly beaten up.
The Mighty Dollar
The mighty dollar has extended its losses to begin the month, and the dollar index is trading at its lowest level since 2018. The weakness in the dollar has led the gains for the currencies, like the Euro, the Japanese Yen and Sterling. The interesting fact about Sterling is that there isn’t much good news for the U.K. Brexit is already in shambles with no clear strategy and a deadline that is destined to lead to another failure.
Support Ends Now
The U.K’s government has ended its support for restaurants far too early, and the recovery that we have seen in the hospitality sectors, specifically for restaurants is likely to be met with a massive disappointment because more and more companies are laying off workers. The U.K government is also going to withdraw its furlough support, and this means the unemployment rate in the U.K. is going to shoot up as smaller and mid-size businesses are in no position to support jobs.
In addition to this, the government has already started the conversation about filling up its coffers by increasing taxes—although nothing is imminent—but even the conversation around this topic is nothing less than poison for the consumer and business sentiment. Despite all this, we have sterling which has been trading higher which is nothing short of insanity.