Here are mesmerizing explorations! Gold is on track for a weekly gain as the yellow metal hit a record high last week. Will U.S. stocks fall on record-breaking new coronavirus cases?
The OPEC+ coalition is set to discuss extension of oil production cuts and oil prices are expected to rally if the extension is reached. Will GBP fight its way out against the U.S. dollar amid the floundering Brexit talks?
The federal government gave a shocking new figure for Canada's fiscal picture and the Canadian dollar remains choppy.
- Economic concerns lingering, causing gold is buzzing >
- U.S. stocks hardly fluctuated despite another record spike in virus cases >
- Oil demand prospect remains in doubt since the COVID-19 staged a comeback >
- Will GBP/USD hold back by slow Brexit negotiations? >
- A shocking new figure for Canada's fiscal picture brings CAD on the downside >
Gold had a phenomenal week. It breached the $1,800-per-ounce resistance level for the first time since 2011 before pulling back to close at $1,798.84 an ounce, up 1.4% on the week.
Why did gold go into a bull market?
First, investors' panic over a worsening pandemic caused heightened risk aversion.
Second, money supply grew in the wake of central bank stimulus packages, and rendered gold likely to rebound in both the short and long term.
Third, several Fed officials issued varying degrees of negative forecasts about the outlook for the U.S. economy.
Finally, a flood of money into the gold investment market has spurred it to become more active. Year-to-date inflows into bullion-backed exchange-traded funds (ETF), for example, have topped the record full-year total set in 2009.
However, at technical level, the bullish behavior looks poised to discontinue as the Relative Strength Index (RSI) reached over 70 and thus pushed into overbought territory.
Therefore, short-term movements in the gold price are more of a concern, while the long-term trend is likely to be positive if by any chance the pandemic prevention and control measures yield little.
While last week saw another record number of new coronavirus infections in the U.S., its stock market showed no signs of concern. The S&P 500 ended last week up 1.6% at 3178.5, and the DJIA up 0.9% at 26067.28, while the Nasdaq Composite posted its second record in a row, rising 3.3% to 10547.75.
Why did the Nasdaq climb so much?
First, technological enterprises, the least-affected sector, constitute the main drivers.
Second, the outbreak of the COVID-19 pandemic has raised expectations for the biomedical industry, especially companies involved in the development of coronavirus vaccines.
Meanwhile, the number of initial jobless claims dropped as expected last week, but it was still a great figure and large companies are planning large-scale layoffs.
Next week’s announcement by the United States of its budget deficit and Consumer Price Index (CPI) could once again roil the stock market. And the central bank will step up its bond-buying efforts to continue indefinite economic stimulus, even though the Fed's balance sheet fell for a fourth week in a row.
Additional points that may affect where the U.S. stock market goes include:
1. How the U.S. economic stimulus policy will be implemented on the fundamentals of companies.
2. Whether the persisting pandemic and economic revival difficulties will lead to another stock market crash; and
3. What major fluctuations in U.S. stocks possibly ensue with campaign speeches from Joe Biden, who becomes an increasingly stronger Democratic candidate as the election nears.
Last week’s crude inventory data from EIA and API were a big letdown. The EIA reported a rise in U.S. commercial crude oil stocks by 5.7 million barrels. It raised its price outlook for Brent crude to $41 per barrel for the second half of 2020, $4 more than its forecast last month, possibly considering the strict implementation of OPEC+ production cuts and higher crude prices in some OPEC+ members.
In the first three days of the week, the oil market was weak-headed, and crude oil prices plunged below $40 a barrel on Thursday, before bouncing back, as fears grew that the recovery in crude oil demand was interrupted by a worsening of the second wave of the COVID-19 crisis and an increased possibility of another blockade despite an uptick in gasoline demand last week. U.S. crude and Brent crude traded last week at $40.58 and $43.26, respectively, up 0.9% and 1.2% for the week.
In addition, China, the largest importer of crude oil, has filled its crude storage space at a sharply dropped price, and thus its crude oil imports are likely to fall in the future. This possibly affects crude prices as well.
OPEC and its allies will decide this week whether to extend a historic 9.7 million b/d production-curb agreement into August, and discuss pressing countries from Iraq to Nigeria to enforce the agreement more strongly. Hence, oil prices may remain range-bound until then.
Last week, UK Finance Minister Rishi Sunak unveiled a £30bn coronavirus stimulus package aimed at stemming the growing jobs crisis and injecting confidence into the coronavirus-battered economy. That sent the pound up against the U.S. dollar on Wednesday, but it fell back again on fears that Brexit talks were going nowhere. The British pound closed at $1.2620 against the U.S. dollar, up 1.1% on the week.
In a sign of Britain's toughness in Brexit negotiations, Business Secretary Alok Sharma pulled out of the EU's coronavirus vaccine program, The Daily Telegraph reported. As British Prime Minister Boris Johnson is determined to bring the U.K. out of the European Union at the end of October, deal or no deal, investors should therefore be prepared for a no-deal Brexit.
Andy Haldane, chief economist of the Bank of England, said at the end of June that in the second half of the year, the UK economy may go toward a circle either from high unemployment to low spending or from high spending to low unemployment. So this week's figures on UK unemployment and GDP will be key indicators for the GBP trend.
Canada's unemployment rate, released last week, showed that nearly a million jobs were added in June as some businesses reopened, bringing the indicator down to 12.3% after hitting a record high of 13.7% in May. As a result, the Canadian dollar closed at 1.35965 to the greenback, up 0.4% for the week.
In another piece of good news for Canada, new home construction starts rose to 212,000 in June from 193,000, beating forecasts of 185,000 and breaking the 200,000 mark for the first time in four months.
By contrast, the federal deficit is projected to reach $343.2 billion this fiscal year because of the Canadian government's massive fiscal stimulus. Still, Fitch downgraded Canada's sovereign rating for the first time, to "AA+" from "AAA", citing the government's excessive use of emergency aid to help offset economic stagnation during the COVID-19 pandemic.
It also expected Canada's total government debt will rise to 115.1% of GDP in 2020 from 88.3% in 2019. As a result, the outlook for the Canadian dollar may be grim.
This week, investors should keep an eye on the Bank of Canada's schedule for policy interest rate announcements and the release of the quarterly Monetary Policy Report. The interest rate is likely to be kept at 0.25% until the end of 2022, according to previous reports.
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