Market Overview

11 August 2020

Global Markets Rise Awaiting the U.S. Congress Deal

World stocks are climbing higher as they are seen to be betting more on the U.S. Congress stimulus deal. After some unilateral executive orders issued by President Donald Trump on unemployment benefits, new payroll tax cut and to avoid evictions, the U.S. Treasury Secretary Steve Mnuchin declared on Monday that he believes "there is room for compromise" in the negotiations between White House representatives. 

The amount of one trillion Dollars for state and local governments is an "absurd number" as the states have more than enough money to handle shortfalls, according to his view. But "If we can get a "fair" deal, we'll do it this week," Mr Mnuchin said. Recently Mnuchin also said that  Paycheck Protection Program (PPP) loans would not be expected to be paid back by small businesses under certain conditions, and now the Treasury Secretary emphasised there is money for the PPP program, so the observers could suppose the point is going to be a part of the package too. The opponents' may follow up on this claim by  asking why the Treasury won't reveal recipients of PPP loans with utmost transparency beforehand. 

Either way, the markets probably smelt the fragrance of money in the Congress room, and therefore, the U.S. S&P500 broad market index continued its upward path to touch 3385-3400 points nearest resistance area. Fresh all-time record highs are within spitting distance, it seems to be only a matter of a very short time. Today the German economic sentiment for August released by the ZEW institute added even more fuel to European stock exchanges, as the Old World's indexes were ready to fly following their American vis-а-vis. 

Consensus expectations for ZEW data for Germany was for a modest decline in the main index to 58 from 59.3 in July, but the actual level was published at "das ist fantastisch" 71.5 points. The current conditions index for German business was at no good levels again, at 81.3 points after just -80.9 points a month ago, but it seems that markets aspire to the future. Especially since the Pan-European economic sentiment for August was almost perfect at 64.0 points vs 55.3 in average expectations by Bloomberg expert poll vs 59.6 points level in July. It seems that a market paradigm with understated low expectations at first and "better-than-expected" data later remains barely universal to drive a lot of recent price movements. In addition to the fast jump of the German Xetra DAX index, the French CAC40 index and the composite Euro Stoxx 50 index gained to their three-weeks-ago levels, which will probably open the door for the U.S. S&P500 to see a gain. The single European currency rose quickly to 1.18, hinting that any recent gains for the Greenback were only short-term technical corrections. 

The U.K. labour market showed the biggest fall of employment since 2009 in the three months through July. Some 220,000 jobs were lost with the number of jobless benefits claims increased by 94,400, but it was highly expected. Plus, the unemployment rate at 3.9% was 0.3% lower than the average forecast, so the British Pound was able to go even higher in a couple of hours. The GBP/USD was helped also by Dave Ramsden from the Bank of England’s (BoE) Monetary Policy Council, when he commented that the Bank is still ready to add stimulus if the economy weakens again. During the same morning, the British Retail Consortium suggested that retail sales were 3.2% higher in July than a year ago. 

The U.S. Producer Price Index (PPI) is expected to add 0.4% year-on-year for the month of July, but it is unlikely that the inflation reports are significant for the markets now, since the policy of the U.S. Federal Reserve and other central banks is determined by the considerations of new incentives and monetary "printing presses". At the same time, the retail sales data from the United States, expected on Friday, may shed some light on where the consumer activity is recovering faster - across the ocean, or maybe on the European continent, or in the British Isles, with corresponding conclusions for the exchange rates on forex.



Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

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