Marius Paun | London, UK | Senior dealer | Friday 10rd July 2020
Stability in Equities Outshone by Performance of Gold
A strong start to the week in Equities worldwide driven by the latest US ISM Non-Manufacturing Purchasing Managers Index (PMI) coming in at a healthy 57.1 vs 50.1 forecast and measures to contain the Coronavirus being gradually eased in many developed economies over the past weeks. However, this buoyancy was soon reversed as a surge in COVID-19 cases in the US threaten to slow the restart.
It is worth noting that US Stocks have outperformed in 2020, with a sharper recovery from the troughs of late march. This follows a multi-year stretch of outperformance of US equities, driven by strong earnings growth as well as investor preference for tech stocks. US equities are only just below levels at the start of the year whilst European (and even emerging markets) are sitting 10% below these levels.
In China, the yuan has strengthened to levels last hit in March, and local stock markets have also rallied as the confidence builds that the country’s economy is shaking off the effects of the pandemic. This optimism seems to have filtered through to the millions of individual investors in China and has pushed the Shanghai Composite to new highs on the year, rising 16.5% in eight straight sessions to the end the week
The biggest winner of the year so far (even outperforming US Treasuries) has been Gold which is now 20% up on the year. This trend continued this week as Gold prices broke through the old 2012 highs discussed last week, with now only the old highs at $1920 from mid-2011 still to be broken. The recent flight to quality culminated in a break through the psychological $1800 barrier on Wednesday, a level which the market looks like closing above for the past 3 days.
On the foreign exchange markets the US Dollar continued to trade in a range, although volatility was starting to pick up, suggesting a break-out could be on the cards. The USD did lose some ground to the Euro, but the main G20 gainers were the British Pound and Japanese Yen, which both closed the week on their highs. Well worth watching how they open up after the weekend break..
The US crude prices continued to trade around the $40 a barrel, consolidating the recent gains. At time of writing the price was sitting just below at $39.80
This coming week has a host of economic data releases with the markets possibly focusing on China trade balances, German ZEW Survey and US inflation figures all due out on Tuesday (14th), followed by Retail Sales figures being announced out of the US on Thursday.