Duncan Donald

Fri, Jul 31

US Earnings impress, but Gold shines the brightest

As the week started the main story was the commodity run which took Gold and Silver to fresh and interesting highs. Naturally, these assets gain from multiple factors presently, the first of which being the obvious safe haven factor in light of the pandemic and global trade conflicts. But the second and probably the most pertinent is the fact we are in and seem likely to remain in a historic global low interest rate environment for some time. The realities of these factors escalate them as prime reserve holdings. Of course, the weakness of the US Dollar also plays a significant factor and the relative dovishness of Jerome Powell in this week's Federal Reserve meeting (FOMC) helped buoy the markets when they were feigning towards a correction of the aggressive up move. As we end the week and month, a month that could well be Gold's strongest in the last 5 years we are closing in on the psychological $2000 level which is seeming less insurmountable by the day.


As we mentioned above the US Fed’s mid-week rate setting meeting did have a dovish or more cautionary tone to the Central Banks outlook of interest rates. Whilst some expected perhaps more guidance on the future rate path, with more cases being reported across the Sunbelt States, it was probably correct that he held firm and maintained a wait and see how the virus dynamic shifts between now and the summer break before we next hear from him in September. Obviously, the continual increase in cases is not just in the US, and this week we have seen significant increases in areas of Australia, Brazil, Spain and Germany have warned of significant second wave potential, which whilst at a human level is gravely concerning but as yet the markets remains broadly unreactive.


In the stock market it was a big week for US earnings, and the US “superstar” stocks shone in the most part taking the ever resilient Nasdaq significantly through the target of the “V” shaped recovery testing the 11,000 level again. The main drivers for this came with impressive earnings from Facebook and the pick of the bunch, Apple who proved lockdown pushed consumers to update and upgrade their technologies. One slight surprise was Alphabet (Google) posting a fall in Advertising sales, however, despite an initial blip lower the stock did post a modest gain on the day.  


For now, the bullish tone prevails in stocks as we head into the holiday month. On Monday we saw Trump's team agree to an aid package for the Unemployed, with a shift from a flat fee to a percentage of past earnings, but this remains an issue with the Democrats and Pelosi not allowing it through the Senate as yet with talks ongoing. There was also talk that the Election in the US could be delayed from the Trump team given the exceptional circumstances (and the fact he's behind in the polls) however it remains extremely unlikely this gets agreed upon. 


The UK and in particular England has not been exempt from the resurgence of cases following the lifting of government lockdowns and this week saw the re instigation of stricter lockdown rules in areas of Northern England, where new guidelines were not being adhered to. This surge encouraged Boris Johnson to extend the suspension of reopening of some of the remaining businesses in the UK, Casinos and Leisure activities. As the UK’s employee shifts in August which takes furloughed employees wages back in part (National Insurance and Pension Contributions) businesses who have been able to retain staff during this period could well look to make necessary redundancies so this month will be pivotal for Unemployment as we look to gauge the true impact of the virus. The news on trade agreements remains bereft of progression with talks between the UK and Japan failing to yield any agreement. 


The Week Ahead: 


Monday: It’s a big day for Manufacturing PMI data across the globe with Japan, Italy, France, Spain and the US all reporting. 


Tuesday: A big day for Australia with firstly Trade Balance data ahead of the interest rate decision from the Reserve Bank of Australia and supporting rate statement. It's quite a light day in the European and US sessions before the Employment Data from New Zealand. 


Wednesday: More PMI’s on Wednesday and this time it's the service sector under the spotlight in Spain, France, Italy, Germany and Non-manufacturing PMI from the US. In the evening we hear from the FOMC’s Mester. 


Thursday: New Zealand’s inflation data starts the day. In The European session we get UK Construction PMI and Italian Industrial Production. At midday we get the UK interest rate decision from the Bank of England, and a statement from BoE head Bailey.  Later in the US session we hear from the Fed’s Kaplan. 


Friday: A further monetary policy statement from the Reserve Bank of Australia and Chinese Trade Balance data, comes early in the session. The main data of the week comes early in the US session with US and Canadian Employment data and US Average Earnings and Non-farm payrolls.