Top 5 Things to Know in the Market on Wednesday, June 24th

New infections of Covid-19 are running at record rates across a swath of the U.S., and markets are – belatedly, some would argue — reacting negatively. The International Monetary Fund is due to update its growth forecasts for the world later. Stocks are set to open lower and gold is within touching distance of $1,800 an ounce for the first time in eight years, as Treasury Secretary Steven Mnuchin talks up another extension to the 2019 tax deadline. And the government will publish its weekly report on the state of U.S. oil supplies after an industry survey suggested crude stockpiles rose again last week. Here’s what you need to know in financial markets on Wednesday, June 24th.

1. Virus surge raises risk of fresh lockdowns; EU mulls ban on U.S. arrivals

The rise in new Covid-19 infections in many states across the U.S. is gathering pace, raising the risk of renewed lockdowns to bring it under control again. Texas, Arizona and California all reported record numbers of new infections on Tuesday.

Some 29 U.S. states now have a reproduction rate (so-called R-number) of over 1, a level that ensures the virus spreads exponentially. Hospitalizations are also rising rapidly – a fact that undermines claims that rising infection rates are simply a result of broader testing.

In Europe later, ministers are expected to announce a ban on arrivals from the U.S.

The virus continues to spread rapidly across Latin America too, with Mexico also recording a record number of new infections and 793 deaths. The Honduran President Juan Orlando Hernandez, meanwhile, has been hospitalized and is receiving oxygen, according to reports.

2. Mnuchin talks up new stimulus package, tax deadline extension

U.S. Treasury Secretary said the administration is “seriously considering” another package of economic support measures and may extend again the deadline for filing 2019 tax returns.

“We want to take our time because, number one, there’s a lot of money we still haven’t put out, and, number two, we want to make sure whatever we do…is much more targeted to the businesses that are most impacted” by the virus, Bloomberg quoted Mnuchin as saying at a conference it organized.

The tax deadline has already been pushed back once from April to the end of July.

3. Stocks set to open lower; Winnebago in the spotlight 

U.S. stocks are set to open lower, as investors finally take on board the threat of the rising tide of new infections.

By 6:30 AM ET (1030 GMT), the Dow Jones 30 Futures contract was down 270 points, or 1.0%, while the S&P 500 Futures was down 0.9% and the Nasdaq 100 futures contract was down 0.6%.

Of note later will be the latest update from Winnebago Industries (NYSE:WGO), whose stock has tripled on speculation that disruption to the travel business will spur demand for its recreational vehicles.

European stocks also turned sharply lower as fears that the U.S. could succumb to a second wave of infections outweighed a sharp rise in the German Ifo Business Climate index. The benchmark Stoxx 600 lost 1.7%.

With the exception of an isolated outbreak in the German meat-packing industry, infections have not risen noticeably in Europe since lockdown restrictions were lifted last month.

4. Gold hits 8-year high

The price of gold hit another eight-year high as the latest wave of coronavirus fears drove investors to place more bets on what is usually a haven asset.

By 6:30 AM, gold futures for delivery on the Comex exchange were up 0.7% at $1,794.80, after hitting an overnight high of $1,796.10 an ounce. Its latest rally has come at a time when other havens such as U.S. Treasury bonds have been relatively range-bound, reflecting the belief that gold is a better-value haven at a time when both nominal and real interest rates have tumbled.

Central banks around the world are still adding monetary stimulus where they can: the Bank of Japan, European Central Bank and Bank of England all increased their quantitative easing programs earlier this month against a backdrop of collapsing global growth.

The International Monetary Fund will later update its forecasts for the global economy in an update of its World Economic Outlook.

5. Crude gets the Covid-19 jitters; U.S. oil stocks eyed

U.S. crude oil prices caught the Covid-19 jitters, falling back below $40 on concerns that a new wave of infections will derail the current recovery in demand.

By 6:30, WTI futures were down 1.4% at $39.78, while the global benchmark Brent was down 1.0% at $42.19.

Prices have been under pressure since the American Petroleum Institute reported a 1.7 million barrel increase in U.S. crude stocks on Tuesday afternoon. The U.S. government’s official data are due at 10:30 AM. A rise of 300,000 barrels in crude inventories is expected.

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08.07.2020 15:14
Forex — Dollar Edges Higher as Virus Cases Grow

The dollar edged higher in early European trade Wednesday, with the safe haven currency in demand as a resurgence of the coronavirus in the United States cast doubt over the strength of the economic rebound.

At 3:050 AM ET (0705 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 96.873.

EUR/USD was up 0.2% at 1.1280, while USD/JPY was flat at 107.52.

There are almost 11.8 million COVID-19 cases globally as of July 8, according to Johns Hopkins University data, of which the U.S. has the highest known numbers of cases and deaths in the world.

A number of Federal Reserve officials expressed concern Tuesday that the surge in infections could adversely impact the economy just as some stimulus programmes are set to expire.

Atlanta Federal Reserve Bank President Raphael Bostic warned that the spike in the number of cases has made business owners “nervous again” and that ‘there is a real sense this might go on longer than we have planned for.”

Still, the rise in cases is not simply a matter for America. The AUD/USD pair lost 0.2% to 0.6935, with the Australian dollar weakening after the country’s second-largest city Melbourne re-imposed lockdown measures to curb the outbreak.

Elsewhere, GBP/USD gained 0.2% to 1.2559 after Prime Minister Boris Johnson said that the U.K. remains committed to working hard to find an agreement over trade with the EU. Chancellor of the Exchequer Rishi Sunak is due to announce details of the country’s latest fiscal stimulus package later Wednesday.

Sterling has gained around 0.6% this week against the dollar and 0.4% against the euro, but still remains one of the weakest G7 currencies as doubts still remain as to whether a trade deal will be signed by the end of the year.

Additionally, skepticism exists that a proposal by some of Donald Trump’s advisers to undermine Hong Kong’s currency peg would come to fruition, as such a move would be difficult to implement and risk hurting U.S. interests as much as it would punish China.

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08.07.2020 13:12
Risk aversion sends gold higher, oil downwards

Oil retreats slightly on risk aversion
With one eye on the equity markets overnight, oil markets mirrored the response of currency markets, giving up some of their recent gains and slipping into range trading mode. Brent crude fell slightly by 0.70% to 42.90 a barrel. WTI eased by 0.70% to USD 40.50 a barrel.
Both contracts are unchanged this morning in Asia, with critical resistance on Brent crude at USD 44.00 a barrel, and on WTI at USD 42.00 a barrel. Only a fall below USD 40.00 a barrel for Brent crude, or USD 37.00 a barrel for WTI, would suggest that the rally in oil prices has run its course.
Oil prices continue to remain balanced between Covid-19 induced growth concerns, and recovery expectations in Asia and Europe. Oil’s downside is likely to be limited unless the US situation deteriorates dramatically. OPEC+ discipline is high, and the grouping will no doubt find the willingness to extend the headline cuts if the situation calls for it.

Excitement builds for gold longs as USD 1800.00 approaches
Anticipation is building in the gold fraternity, with Covid-19 concerns giving a haven boost to prices overnight. Gold rose 0.60% to USD 1795.00 an ounce, having tested USD 1797.00 an ounce earlier in the session. Gold’s grind higher is remorseless and pleasingly, appears to have detached itself from negative equity price action for now.
The USD 1800.00 an ounce region will be a tough nut to crack though. It capped gold’s advance multiple times from 2011 to 2012. I do not doubt that there will be substantial option related offers ahead of it to defend USD 1800.00 strikes. Nevertheless, gold is girding itself for the long-awaited assault on this critical resistance level. Gold had support at USD 1775.00 an ounce. Only a daily close below here would delay proceedings. Should USD 1800.00 an ounce give way, gold is likely to move quickly to the USD 1820-1830 zone, driven by stop loss and algorithmic buying.
Gold is unchanged in Asia today in yet another moribund session. It will probably be left to the New York market to get the job done.

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07.07.2020 12:23
Oil prices fall on demand concerns from U.S. coronavirus case surge

Oil prices fell on Tuesday, erasing earlier gains, on concerns that the surge in coronavirus cases in the United States, the world’s biggest oil user, will limit a recovery in fuel demand.

U.S. West Texas Intermediate (WTI) crude (CLc1) futures fell 17 cents, or 0.4%, to $40.46 a barrel at 0340 GMT, after earlier rising to as high as $40.79.

Brent crude (LCOc1) futures declined by 19 cents, or 0.4%, to $42.91, after hitting an intraday high of $43.19.

With 16 U.S. states reporting record increases in new COVID-19 case in the first five days of July, according to a Reuters tally, there is mounting concern that public health measures to limit the virus spread will curb fuel demand.

Florida is re-introducing some limits on economic reopenings to grapple with rising cases. California and Texas, two of the most populous and economically crucial U.S. states, are also reporting high infection rates as a percentage of diagnostic tests conducted over the past week.

«The potential for demand destruction as lockdown re-instatement looks more likely are combining with concerns about OPEC+ discipline to weigh on oil prices,» said CMC Markets’s Chief Market Strategist Michael McCarthy in Sydney in an email.

The Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia, collectively known as OPEC+, are lowering output by 9.7 million barrels per day (bpd) for a third month in July.

However, those cuts are set to taper to 7.7 million bpd starting next month, adding supply at the same time U.S. fuel demand, especially for gasoline, remains impacted by the COVID-19 outbreak.

«Summer driving demand in the U.S. is low, keeping gasoline demand subdued, and a reintroduction of lockdowns is a major headwind,» ANZ said in a note.

Data from the American Petroleum Institute industry group later on Tuesday and the U.S. Energy Information Administration on Wednesday are expected to show a 100,000 barrel rise in gasoline stockpiles, six analysts polled by Reuters estimated.

The U.S. crude market faces some uncertainties from a court decision on Monday ordering the shutdown of the Dakota Access pipeline, the biggest artery transporting crude oil from North Dakota’s Bakken shale basin to Midwest and Gulf Coast regions, over environmental concerns.

Market sources in the Bakken said the closure of the 570,000-bpd pipeline, while a thorough environmental impact statement is completed, will likely divert some oil flows to transportation by rail.

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