Market Overview

2 September 2020

Several Boots Form a "Shoe Shop Like" Moves of Capital Flows between Markets

European stocks rushed after the next wave of the U.S. indexes rally. The German DAX30 index is specifically shining on Wednesday to come as close as possible to its summer peak and it claims to get the highest closing price of the day since the pre-coronavirus period. This happened despite a monthly decline of 0.9% in German retail sales data, with an annual growth of 4.2% after 5.9% published in the beginning of August, but the last value was revised up to 6.7% today, according to the report of German statistics. The German manufacturing purchasing managers index (PMI) came at 52.2 on Tuesday, which indicates the third month of industrial growth in a row, but the markets are boosted even more by fresh signs of economic recovery on the other side of the Atlantic Ocean. 

The U.S. manufacturing PMI measured by the Institute of Supply Management (ISM), based on replies of purchasing and supply executives in over 400 companies, showed 56.0 points, the highest reading since April 2019, as new industrial orders component reached 67.6 points, which is a record value for 16 years. Manufacturing price indicator at 59.5 showed the maximum for the last twenty months. This price indicator flamed concerns of earlier spike in inflation, which may have slightly cooled the bets on ultra-dovish monetary policy of the Federal Reserve (Fed). This helped the U.S. Dollar to temporary rebound in the currency market. 

The data from the Australian Bureau of Statistics clarified the details to show the country had suffered its worse-than-expected economic fall in Q2 2020 gross domestic product (GDP). The data were old, but AUD/USD fell from 0.7380 to 0.7325 area, which also prompted the Greenback to retrace vs the basket of other currencies. 

The general summer downtrend on Greenback is untouched, as later at the same day Lael Brainard, the Fed's Administrative Governor and Chair of the Committees on Financial Stability, said the U.S. regulator would need to provide more stimulus to fulfil its promise of stronger job growth and higher inflation. So, she indicated that the accommodative policy will remain in place for a long-lasting period of time. Lael Brainard emphasised in her speech to the Brookings Institution, the U.S. government spending is "essential" to help struggling Americans weather downturn, as "business shutdowns risk becoming permanent". The White House and Congress are still at an impasse for weeks over a new emergency aid package, which needs to be a successor to the $2.2 trillion CARES Act passed in spring. The main points of the law including extra jobless payments and relief to small businesses expired at the end of July, but some problems with unemployment benefits and evictions were partially, but temporarily resolved by the presidential orders in August. The Centres for Disease Control moved to neutralize one of the biggest risks to consumer confidence on Tuesday, issuing a nationwide order temporarily halting millions of U.S. renters from being evicted, basing on the risk that evictions would cause a faster spread of the virus. 

By the way, the U.S. Treasury Secretary Steven Mnuchin on Monday said Republicans are just going to unveil a new spending bill but the House Speaker Nancy Pelosi commented in a statement after a phone call with Steven Mnuchin on Tuesday that "serious differences" remain between the sides over this coronavirus relief legislation. Steven Mnuchin last night rejected a pared-down $2.2 trillion proposal from Nancy Pelosi. Before this, the White House chief of staff Mark Meadows made a remark that Senate Republicans are likely to bring up a targeted COVID-19 relief bill next week. Combined together, all this means some developments on the stimulus case after all. Along with a positive economic agenda, it helps indices to soar higher. Even the more industrial Dow Jones 30 index is climbing for the fifth week in a row following the broad market S&P500 index. 

Main winners of the rally are again high-tech stocks. The Nasdaq 100 index leads now with the Zoom-infused rally. A 40% surge in Zoom Video Communications shares happened after the well-known video conference software maker reported its quarterly earnings in pandemic time that beat all Wall Street estimates, and the near-term potential of Zoom Video was clearly underestimated before. Share prices of both Google and Amazon giants have also rewritten their previous historical records yesterday. Apple rose almost 4% to take its capitalisation value to almost $2.3 trillion after some media reported that the company asked suppliers to produce at least 75 million 5G iPhones before the end of the year, so that the revolutionary technology plus trade-in marketing may keep the Apple share prices at high levels for a mid-term prospective. 

There is an extensive feeling that capital flows are slightly tumbling around, from rather expensive gold futures to also expensive but rising U.S. stocks, or to the cheap European markets, but then partially across the ocean and to the gold again, or to the particular currencies. In the course of the whole process, they are not just two boots to make a pair, but several boots to make a "shoe shop like" investment portfolio, and those assets from the set help each other to rise gradually higher by turns.



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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