Friday ended on a flat note for Wall Street, with the US and China tit-for-tat consulate closures leaving markets disconsolate. The weekend press was dominated by the story, and the re-emergence of Covid-19 in Spain, along with surging cases across Australia and South East Asia.
The rotation out of US dollars continued apace, with euro, sterling and gold the noted outperformers. USD/JPY appears to be finally on the move as well, with the cross tumbling 0.70% to 106.15 on Friday. More on this later.
There is cause for the gloom to lift somewhat in Asia today. China Industrial Profits YTD (YOY) fell by -12.80%. The headline number masks an improvement over last month’s -19.30% print, and a steady recovery by the monthly data since January 2020. In the US, the White House and the Senate Republicans have apparently reached “an agreement in principle” on the follow-up coronavirus stimulus package. More details are due throughout the Asian session. Those narratives should Trump the disconsulate, disconsolate geopolitical moods today.
Will gold break USD2000?
Gold is front and centre today, with the yellow metal up 1.0% in Asia to USD1919.50 an ounce, a hair’s breadth from its all-time highs of USD1920.30 an ounce. I expect some heavy options-related two-way price action around here, but a break looks imminent. A break of USD1920.30 an ounce should see gold rapidly accelerate higher as stop-loss, systematic and technical-related buyers load up. USD2000.00 an ounce is the next target, and I wouldn’t be surprised to see it achieved relatively quickly.
Data highlights this week will be the Federal Reserve interest rate decision, and China’s official manufacturing and non-manufacturing PMI’s. We expect no change from the Federal Reserve, with most attention on the accompanying statement after. That will reiterate their ultra-dovish stance. China’s PMI’s will be more market-moving. We expect both to continue to trend higher, and geopolitics and pandemics aside should keep the momentum going in equity, precious metals and currency markets.
Investors will be keeping a close eye on big-tech earnings reports later in the week from Apple, Amazon, Alphabet and Facebook. It presents the main risk to the bullish market sentiment, in my opinion. All-in-all, the week has an exciting look about it, notably in the precious metals and currency space, where momentum is clearly accelerating and looking to overshadow moves in equity markets. Underlying the moves is a weaker US dollar, driven by negative real yields. Positive data from China, a still ultra-dovish Federal Reserve and a new US pandemic relief package are combining to form some strong following trade-winds for financial markets.
