Weekly Market Wrap 27-July to 31-July/2020

Marius Paun | London, UK | Senior dealer | Friday 31st July 2020

 

The US Fed Keeps Interest Rates On Hold Amid The Same Dovish Tone

 

The US Federal Reserves left its interest rate unchanged at the FOMC meeting on Wednesday and kept its dovish stance. Chairman Jerome Powell said they expect core inflation to drop to 1% adding that the present challenge is to deal with a ‘disinflationary shock’ due to Covid-19 pandemic.

On Thursday, data showed the US GDP shrinking by 32.9% during the second quarter, surpassing estimates for a 34.7% decline, but still the largest drop since the Great Depression. Meanwhile, the weekly jobless claims were 1.434 million matching predictions. The US dollar, already nosediving, got further headwinds after President Donald Trump appeared to be in favour of delaying the presidential elections in November. Smelling troubles ahead, the Republicans reacted, opposing the idea.

On another note, the US Senators are looking to reduce the extra unemployment benefits from $600 to $200 until they create a system that will provide 70% of the workers previous pay,  according to Bloomberg.

China also has reported 105 new cases of Covid-19 on Thursday, the highest figure since March. Elsewhere, the country’s Politburo had a meeting to discuss economic strategy for the second half of 2020. They said the monetary policy will be more targeted, the Chinese economy is still facing big uncertainties and that the current environment is ‘complex and severe’

Back in the UK, the sterling pound moved above 1.31 to the US dollar despite a rise in infections especially in Northern England. The driver seemed to be an ongoing weakness in the greenback. On Friday afternoon Prime Minister Boris Johnson has put lockdown easing due to come in this weekend on hold.

European Central Bank has asked banks in the common area to stop paying dividends and not to buy back shares until January next year in an attempt to conserve capital. The measures have been taken as many countries in Europe have recently reported a rise in infections fearing a second wave of coronavirus pandemic.

Gold and the whole precious metal spectrum were the major theme this week. Impressively gold surpassed the previous all-time record high reaching $1983.52 on Friday. The weaker US dollar, massive monetary and fiscal stimulus, with more still to come, as well as the record global debt going even higher have come together creating the perfect storm. Many analysts are now saying it’s the best time to be invested in precious metals.

US crude prices moved higher earlier in the week, now within touching distance of $42.00 mark, supported by a slumping dollar. However fresh concerns the coronavirus could dent the economic recovery has made investors think twice and oil prices retraced to $40 per barrel going into the weekend. And that happened despite a chunky drop in weekly oil inventories of over 10 million barrels versus expectations for a build of 1 million barrels.