August 19, 2020

Uneven Stock Market Rally Continues

Uneven Stock Market Rally Continues

European markets and U.S. futures are trading higher today, as the S&P 500 index finally reached its all-time and confirmed that the index has what it takes to continue its upward journey. There is no doubt that the tech sector leads this coronavirus stock market rally. The fiscal and monetary policy aid has also played a big part in this. Speaking of aid package, the second stimulus coronavirus package seems to be delayed due to better than expected U.S. economic numbers and the fact that the second quarter’s corporate earnings were better than expected. 

Listening to the speaker of the House, Nancy Pelosi’s comments yesterday, Democrats need to go back to the drawing board and take some fat off from their proposed plan. It also appears that the second stimulus package is likely to become more of a political play now, as the Democrats may not want to do anything after the U.S. presidential elections. On the other hand, the Republicans may want to push something out before the U.S. elections take place. The fact is that yes, we have seen a minor recovery in the U.S. economic numbers, but this does not mean that the U.S. economy doesn’t need support. The recovery is still very fragile, and without any further support from the policymakers, things could go off the rails fairly rapidly. 

The Dow Jones futures are also moving higher on the back of optimism that the coronavirus situation is finally coming under control in the U.S. 

New coronavirus cases have started to fall across the U.S. sunbelt. For traders, this is positive because the U.S. has the biggest coronavirus numbers. If the situation begins to improve, it also means the resumption of economic activity, which could translate into better economic numbers. 

The U.S.-China geopolitical tensions are something that traders are keeping a close eye on. The situation continues to become even more intense. There is no doubt in saying that the U.S.-China relationship is no longer the same as it once was. President Trump has ranched up the tensions. Trump has said that he has walked away from the trade conversation with China. For traders, the message is that the U.S.-China tensions are mounting, and this means grave uncertainty. 

Oil Eyes Inventory Data 

As for the oil market, traders are a bit cautious today because of the U.S. crude inventory data. The hope is to see a further ease in the supply glut, and if we see an improvement in that, oil prices may likely experience a positive reaction. Traders are also keeping an eye on the OPEC+ gathering where the current supply cut is the agenda of their meeting. No one wants to see the OPEC+ resume production to their pre-covid-19 levels. The reason is simple: global economic output is nowhere close to this level, which means that oil demand is well below its pre-coronavirus level. An increase in the supply can only translate into a massive disaster for the oil prices. 

Gold Struggles to Shine 

Keeping the focus in the commodity space, gold prices have moved below the $2,000 mark today. This is mainly due to the renewed confidence in equities amidst traders. Policymakers are taking some comfort in better than expected economic numbers. They have started to debate the second stimulus package, and this has taken some wind out of the gold trade. However, the path of least resistance for gold prices may possibly be skewed to the upside, and the current retracement in gold prices could be an opportunity for traders to get back in the game. The most significant event for the gold prices is the upcoming U.S. GDP reading due next week.