Asian stocks hovered near four-month highs on Thursday on hopes of a vaccine for COVID-19 while copper prices jumped to a more than six-month peak on a better global outlook and supply fears in top producer Chile.
All eyes are on U.S. employment data, due later in the day, which are expected offer further cues into how the world’s largest economy is coping with a rise in coronavirus cases in several states.
In a sign the positive sentiment will extend elsewhere, E-minis for S&P500 (ESc1) rose 0.3% while futures for Euro Stoxx 50 (STXEc1) rose 0.8% and those for Germany’s DAX (FDXc1) climbed 0.8%. London’s FTSE futures (FFIc1) added 0.6%.
A vaccine for COVID-19, which has killed more than half a million people globally and shut down the world economy, has been long anticipated.
«Based on a vaccine trial containing 45 people, including placebos, the V-shaped recovery gnomes, are once again, reaching for the sky,» said Jeffrey Halley, Senior Market Analyst, Asia Pacific at OANDA.
MSCI’s broadest index of Asia Pacific shares outside of Japan (MIAPJ0000PUS) rose 1.5% to near levels seen in early March.
U.S. employment figures will help indicate whether the world’s largest economy can sustain its fragile recovery as new COVID-19 cases accelerate in several southern states.
Economists polled by Reuters expect private employers to show 2.9 new million new jobs June, which would follow a surprise increase in May. Casting some doubt over that projection, however, was a smaller-than-expected increase in jobs seen in the ADP (NASDAQ:ADP) report on Wednesday.
«A better-than-expected outcome could go some way to settling the near-term debate that the U.S. labor market will heal relatively quickly and justify new highs in U.S. equities,» said Stephen Innes, strategist at AxiCorp.
Wall Street ended Wednesday higher after key economic indicators showed a rebound in Chinese manufacturing activity as it recovers from the pandemic while sharp declines in European factory activity eased.
Equity investors shrugged off concerns about Hong Kong where police arrested more than 300 people protesting sweeping new laws introduced by China to snuff out dissent.
Those developments have raised concerns about China’s already strained relations with its major western trading partners, particularly the United States.
In commodities, the most-traded August copper contract on the Shanghai Futures Exchange touched 49,570 yuan ($7,016.28) a tonne, its highest since Dec. 30, 2019.
Manufacturing activity rebounded in the United States in June, while the factory sector in Germany, Europe’s largest economy, contracted at a slower pace and top copper consumer China posted better-than-expected manufacturing data.
Meanwhile in Chile, where the number of COVID-19 cases have been climbing, miner BHP (AX:BHP) said it would begin to slow production at its small Cerro Colorado copper mine in the country.
Elsewhere, oil prices climbed and gold eased while the dollar was steady as encouraging macro data prompted investors to take on more risk.[O/R][GOL/]
The safe haven greenback was unchanged against the Japanese yen at 107.45. The euro was a shade higher at $1.1267 while sterling was slightly firmer at $1.2497.
The risk sensitive Australian and New Zealand dollar were 0.2% and 0.4% stronger respectively.
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.
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.
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.
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.