Market Commentary - July 27, 2020
On the back of history’s most accommodative monetary stance by the Federal Reserve, Gold sets record high briefly touching 1944 before settling lower. With inflation expectations rising, real yields are becoming negative making precious metals an attractive asset as the dollar continues it decline. Alongside precious metals, bitcoin breaks 10K. Wall Street on disappointing earnings, whilst Asia opened relatively mute.
Figure 1 (source: Refinitiv Eikon): XAU hits new hights, touching 1944 in early hours trade.
Headliners to Review
- The EU Flash Manufacturing PMI increased from 47.4 in June to 51.1 in July, beating the 50.0 expectations. The Flash Services PMI jumped from 48.3 in June to 55.1 in July, beating the 51.0 expectations. The PMI in Europe are generally good.
- French Flash Services PMI jumped from 50.7 to 57.8. French Flash Manufacturing PMI dropped a bit from 52.3 to 52.0.
- German Flash Manufacturing PMI jumped from 45.2 to 50.0 while German Flash Services PMI jumped from 47.3 to 56.7
- UK Flash Manufacturing PMI rose from 50.1 to 533.6 while Flash Services PMI jumped to 47.1 to 56.6.
- US new home sales increased from 682,000 to 776,000, beating the expectation 700,000. It is the second straight rise after the lockdowns due to coronavirus pandemic. A record low mortgage rates and growing demand are still the main drivers for the housing market in the coming season.
For the week coming up ahead, markets will be predominantly driven by expectations of the Federal Reserve’s next moves. Widely expected to hold this month, an ailing US recovery leaves room for more action.
US Treasury Secretary Steven Mnuchin said Republicans have finalized the $1 trillion coronavirus relief legislation, which will be introduced on Monday. It is expected that relief package will include another round of direct payments to individuals, liability protections and a reduced federal supplement to unemployment benefits.
Wall Street awaits a second weeks of earnings. Apple on the forefront, analyst predict a hit on earnings, whilst online giants Amazon, Alphabet (Google) and Facebook more or less saw a rise in usage and demand amid less foot traffic.
Headliner to Watch
- US set to announce durable goods and core durable goods orders MoM. Market consensus see’s the American economy still holding up, with the former expected at 7% and the latter at 3.5%. Reluctance to lock-down the economy by the White House, has ensured consumer demand as the outbreak continues to worsen.
- German business sentiment expected to improve further from 86.2 to 89.2 however still below pre-crisis levels. With the ECB continually increasing the supply of money (expected 9.5% MoM increase) in combination with the recently agreed upon 750bn recovery fund. German ifo Business Climate is likely to increase in the coming months.
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