We’re in a bit of a holding pattern after a lively start to the week, with Wall Street eyeing another largely unchanged open, mirroring the broadly directionless trade in Europe.
There was an abundance of catalysts earlier in the week, both positive and negative, which had stock markets in a bit of a frenzy. The sell-off late last week left markets looking a little vulnerable but the Fed put a stop to that with its corporate bond purchases.
A big risk factor for the markets is Beijing. If the stock market has one major vulnerability right now it’s the dreaded second wave of the virus, which threatens to shut down economies once more. It’s all well and good central banks pumping the system full of cash, if the global economy grinds to a halt again, investors will get very nervous.
Until then, focus will remain on economies reopening around the world and central banks expanding their balance sheets at a phenomenal rate. Barring a damaging second wave, it’s difficult to envisage stock markets suddenly falling out of favour.
BoE adds to global stimulus
The Bank of England today continued to trend of pumping ever more cash to fight the crisis. As expected, the MPC voted to add another £100 billion to its quantitative easing program, with only one member dissenting. The upside was that they believe the economic outlook has improved since the May inflation report and that conditions have improved allowing them to conduct purchases at a slower rate, with the additional £100 billion seeing them through to the end of the year.
Oil edging back to $40
Oil prices are continuing to creep higher again after dipping a little last week. WTI is closing in on $40 again as economic indicators, particularly in the US, continue to look promising. The downside risks to oil prices remain, most notably new waves of COVID – as we’re already seeing – and producers ramping up production now that prices have returned to more acceptable levels. We may see oil face a lot more resistance to rallies than we’ve bcome accustomed to over the last couple of months.
Gold struggling yet again
Gold is coming off a little today as it continues to face challenges on approach to $1,750. The rebound in the dollar continues to hold it back, with the stronger US data for May contributing to that. The dollar is a major headwind for gold and it continues to come back into favour, whether the environment becomes more risk off or the US economy exceeds expectations. It may make gold’s trip higher a bit of a slog in the near term but longer-term factors continue to be supportive.
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