Weekly Market Wrap 20-July to 24-July/2020

Marius Paun | London, UK | Senior dealer | Friday 24th July 2020

 

The US-China Tensions Escalated From Aggressive Words To Actions

The US stock market was led higher by Nasdaq on Monday which gained 2.5% on the day closing to a new all-time record high. The tech index is now 20% up for the year. The catalyst for the rally was the announcement that a vaccine was close to release by Oxford, together with tests by the giant pharmaceutical company, Astra Zeneca, showing promising antibodies. Meanwhile Treasury Secretary Mnuchin is hopeful that a new coronavirus economic rescue bill will be approved by the Congress by the end of July.

On Wednesday, the US demanded that China close its consulate in Houston. The US Department of State said the measure is taken to protect intellectual property and private information. In a tit-for-tat move on Friday afternoon, Beijing ordered the US consulate in Chengdu to cease operation.

Elsewhere in China, President Xi Jinping commented that his country will make up the losses caused by the Covid-19 pandemic. He added that taxes and fees will be cut and generally speaking China will combine a more flexible monetary policy with a proactive fiscal policy.

The chances for a trade deal between the UK and the EU appear to be fading rather fast, according to both sides. The final round of talks is scheduled for mid-August, however there are three remaining key areas where they need to bridge their differences:

  • EU access to Britain’s fishing waters
  • the UK staying aligned to EU rules on state aid
  • the role of the European Court of Justices over the agreement

After four days of intense negotiations, European leaders agreed to a recovery fund package worth 750 billion euros of grants and loans. The European Commission President Ursula von der Leyen described it as ‘a pivotal moment in EU history’ and a signal that Europe is able to act when needed. The euro moved from a low of 1.1402 to the US dollar to trade around 1.1630 on Friday afternoon.

Gold prices extended their recent gains and reached a high of $1906.5 per troy ounce, last seen on September 2011. It has been driven by an unprecedented level of monetary stimulus, record-high government debts going even higher and ongoing geopolitical trade tensions. Concerns that at some point inflation will return as this time the monetary stimulus has fed through to the real economy much better than it did during similar actions in the 2008 financial crisis, was also a supportive factor. The precious metal is now within reach of the all-time record high of $1920 touched earlier on September 2011.

US crude prices were a rather stable trading around $41.00 per barrel going into weekend. It tested support at the $40.00 mark and bounced after being unable to breach below convincingly. The US Department of Energy released its weekly oil inventories report which showed a build of 4.9 million barrels versus expectations for a drop of 2.1 million barrels.