September 3, 2020

Dow Jones: Coronavirus Vaccine and Jobless Claims In Focus

Dow Jones: Coronavirus Vaccine and Jobless Claims In Focus

European and U.S. stock futures are trading higher while traders have started to shave some profit off their trades after the U.S. indices recorded another record high. However, market participants are still very comfortable with the idea that central banks around the globe are still unleashing their support. As long as the current stock rally has support from central banks, things are likely to remain rosy. 

Sector Rotation

We also have started to see the sector rotation in this coronavirus stock market rally. This means that it is not the tech sector alone that is pushing the major stock indices like the S&P 500 higher. The upward move is broadly supported from the index’s lagging sectors as well, such as energy and material.

The airline and hospitality sectors are still lagging, and the rally for these is very much dependent on the outcome of the coronavirus vaccine. These sectors are likely to rally when we have a vaccine, which could be as early as November. 

Prepare for Vaccine 

The U.S. Centre for Disease Control and Prevention has already alerted states that they need to be in a position to start vaccinating Americans by Nov 1. This suggests that a potential vaccine could be here before November. This also happens to be before the U.S. elections.

Having a vaccine before the U.S. election is likely to have a major influence on the outcome of U.S. elections as more Americans will be inclined to go out and vote for their choice of President for the next four years.  

Dollar Off its Lows 

In terms of economic numbers, yesterday, we had the U.S. ADP number. The data has set the tone for the upcoming Friday’s payroll number; the message is that there is a gradual recovery for the U.S. economy.

Even though the ADP employment report confirmed only half of the jobs created against the forecast, it helped the dollar index bounce from its lows. The dollar index’s strength was bad news for other currencies that surged on the back of the dollar weakness.

Jobless Claims Ahead 

Investors will be looking at today’s weekly Jobless Claims data and the ISM Non-Manufacturing numbers. These numbers are likely to strengthen the dollar index more if they echo the same message we received yesterday. The forecast for the U.S. Jobless Claims is 955K against the previous reading of 1.06 million, and for the ISM Non-Manufacturing PMI, it is 57, a slightly soft number against the previous reading of 58.1. 

Euro Got Battered 

On the currency front, both the Euro and Sterling got battered today. As mentioned earlier, most of the selling was chiefly due to the sell-off in the dollar index. However, the sell-off for the euro-dollar pair was more intense as compared to the GBP/USD pair. The housing economic numbers out of the U.K. were a little more promising yesterday, and this came on the heels of more robust mortgage approval data that we received earlier this week. 

ECB Ready For Action 

The outlook for the U.K. is much weaker than the E.U. This is because, during next week’s ECB meeting, it is expected that there could be some talk about the exit strategy of the ECB’s emergency stimulus plan. The ECB is likely to emphasize the recovery in the economic number for the past few quarters and may begin the exit strategy. It is expected that there could be more change in the wording rather than in action. This should support the Euro’s price action. 

U.K. Tries to Stand With Germany 

On the geopolitical front, the U.K.’s Prime Minister has demanded answers from Russia after the German Chancellor, Angela Merkel, confirmed the poisoning of Alexei Navalny. Boris Johnson has taken a tough stance against Russia and asked the country to explain the reasons behind their action. Johnson said that he is going to work with international partners in order to secure justice. 

Standing with Germany on this issue may help to iron out some of the wrinkles concerning Brexit negotiations, but the chances are that the E.U. isn’t going to fall for it that easily. 

Andrew Baily, the Bank of England‘s Governor, has called an equivalence of rules for U.K.’s investment banks to operate in the E.U. at any cost. The U.K. still wants to keep London as the banking hub, but after voting for Brexit, this task may be extremely arduous.  

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