Top 5 Things to Know in the Market on Wednesday, July 1st

Texas and California post new record highs for Covid-19 infections, as Anthony Fauci warns that the U.S. is losing control of the virus. Europe’s economy shows signs of further improvement, while China makes its first arrests in Hong Kong under the new national security law. Stocks are set to open lower ahead of the ISM Manufacturing Index later, while oil prices are regaining momentum after fresh signs of falling output and recovering demand. Here’s what you need to know in financial markets on Wednesday, 1st July.

 

1. California, Texas post new infection records

Texas reported a record-high 6,900 new coronavirus cases Tuesday, while California reported a new record high of 8,441, according to Reuters. The numbers amplify the warning on Tuesday from the U.S.’s top doctor Anthony Fauci that the country is losing control of the epidemic.

Fauci, head of the National Institute for Allergy and Infectious Diseases, said that the U.S. “is going in the wrong direction” and warned that new infections could top 100,000 a day. His words came ahead of the July 4th weekend, on which public events and family gatherings are set to pose heightened risks of transmission.

Fauci said around half of all new cases are currently coming from four states: California, Texas, Florida and Arizona.

A poll for CNBC showed that the virus’ progress was increasingly feeding through into negative ratings for President Donald Trump less than five months ahead of November’s election.

 

2. Europe improves at jobless surge eases

Europe’s economy showed further signs of improvement after its collapse earlier in the second quarter.

The composite IHS Markit purchasing managers index for the euro zone June was revised up to 47.4, while the index for the U.K. rose above the 50 level, suggesting that the economy has stopped contracting. The Bank of England’s chief economist Andrew Haldane, who had voted against increasing the bank’s bond-buying last month, also said the U.K. rebound is proceeding faster than expected.

In addition, the rise in German unemployment slowed sharply in June to only 69,000, well below expectations for a 120,000 rise. French auto registrations rose in year-on-year terms for the first time this year.

 

3. Stocks set to open lower; ISM eyed

U.S. stocks are set to start the third quarter on a negative note, as concerns about the spread of the virus – and a possible further chill in relations with China – dominate sentiment.

By 6:30 AM ET (1030 GMT), the Dow Jones 30 Futures contract was down 161 points, or 0.6%, while the S&P 500 Futures contract was down 0.5% and the Nasdaq 100 futures contract was down 0.3%.

The unease about risk assets is being reflected in the price of Gold, which advanced to a new eight-year high after closing above $1,800 for the first time since 2012 on Tuesday. By 6:30, it was at $1,805.65 a troy ounce, up 0.3% from Tuesday’s close.

Stocks in focus will include Constellation Brands (NYSE:STZ), brewer of the world’s most unfortunately-branded beer, and General Mills (NYSE:GIS), both of whom report earnings. The day’s big data release is the ISM Manufacturing Index at 10 AM, which is expected to rise from 43.1 in May to 49.5 in June. There’s also the ADP private payrolls report for June.

 

4. China cracks down in Hong Kong

Chinese police made their first arrests in Hong Kong under the new security law, which was enacted on Tuesday.

The law, which provides for life sentences against those convicted of subversion, sedition and terrorism, was imposed without being read in the city’s own legislature.

CNN reported around 70 arrests in response to protests that were relatively small by comparison with earlier pro-democracy actions before the coronavirus pandemic exploded.

 

5 Oil rebounds on rebalancing evidence

Crude oil prices regained some upward momentum after data showing a clear drop in exports in June from Iraq, the biggest over-producer in the OPEC+ bloc.

By 6:30 AM, U.S. crude prices were up 2.4% at $40.22 a barrel, while the international benchmark Brent was up 2.2% at $42.33 a barrel.

The mood was also helped by a much larger-than-expected draw in U.S. crude stocks – as reported by the American Petroleum Institute – which reassured traders that the process of market rebalancing hasn’t yet been derailed by the surge in U.S. Covid-19 cases.

The extent of the rebalancing was further illustrated on Tuesday – albeit with numbers that were largely of historical interest — as the Energy Information Administration said U.S. oil output had fallen in April to 12.06 million barrels a day, over 300,000 b/d more than it had previously estimated.

 

The government’s own inventory data for last week are due at 10:30 AM ET.

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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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