Weekly Market Wrap 15-19 /June/2020

Marius Paun | London, UK | Senior dealer | Friday 19th June 2020

More stimulus amid worries of a second coronavirus outbreak

On Monday, the US markets recovered from early losses after the Federal Reserves announced further measures to support the markets. Chair Jerome Powell said they will start buying individual corporate bonds under its Secondary Market Corporate Credit Facility, an emergency lending program that so far was involved only in exchange-traded funds. The reason for intervention is that markets were a bit jittery following news that infections are surging in Latin America, the southern part of the United States and even China is faced with fresh outbreaks.

The US stocks were also lifted by the surprise record increase in retail sales for May of 17.7% versus an expectation for a 7.7% gain, the biggest monthly jump ever. Markets were further boosted by speculation that President Trump is considering a further economic stimulus of $1 trillion for a massive infrastructure project.

Meanwhile, we saw China’s industrial production for May coming in at +4.4% versus +5% expected and retails sales dropping 2.8% versus consensus for -7.5% in April. Although the Chinese government said the coronavirus outbreak is under control, measures were taken to close down markets in Beijing after reports of new Covid-19 cases.

On Thursday, the Bank of England announced it is expanding its bond-buying programme also known as quantitative easing by a further $100 billion. The vote was unanimous and will take the total programme from $645 billion to £745 billion. At the same time, in line with markets expectations, the UK central bank kept its benchmark interest rate at 0.1%, a record low.

Meanwhile a potential cheap steroid treatment – dexamethasone and widely available ‘reduced Covid-19 deaths in critically ill patients by up to one third’ a study has shown. The UK Health Ministry said the drug has already been approved for use in the National Health Service.

The trade surplus shrank significantly in Europe with the latest report released by Eurostat showing a gain of 1.2 billion euros versus 23.5 billion previously. Exports collapsed by 24.5% in April with imports slumping by 13% reiterating the bit hit taken by the eurozone area due to lockdown measures. On Friday, German Chancellor Angela Merkel warned her fellow European leaders of ‘very very difficult times ahead’.

Meanwhile, on the Brexit front, the German government urged the other European Union members to prepare for a no-deal exit.

Gold prices were on the back foot on Monday but quickly found good support just above the $1704.00 mark. Later on, news of extra stimulus spurred renewed buying and the precious metal was back above $1740.00 on Friday afternoon.

Elsewhere, the US crude enjoyed a nice rally this week touching above $40 mark for the first time since last Monday. The weekly US oil report showed a build of 1.2 million barrels versus an expectation for inventories to remain flat.