US stocks and European equities opened higher after both US and Chinese trade negotiators spoke, reaffirming their commitments to ensuring the success of the phase-one trade agreement and as German businesses confidence improves and Merkel’s government readies the extension of their state wage-support program. Despite all the recent positive headlines on the medical front in fighting COVID-19, the last part of this stock market rally seems to lack conviction as much of it stems from the growing tech bubble and as Treasury and Bund yields rise. Investors seem convinced Fed Chair Powell’s Thursday speech at Jackson Hole could contain some bullish surprises as he reveals parts of the Fed’s new policy framework.
Risky assets for now seem firmly supported as the global economic recovery continues. The biggest risk to financial markets will be when governments and central banks start tapping the breaks with their pandemic relief efforts.
Trade
Wall Street got what it wants on the trade front after Ambassador Lighthizer and Secretary Mnuchin finally had a call with China’s Vice Premier Liu He to discuss implementation of the phase-one agreement between the United States and China. Both sides echoed progress and offered constructive comments that should ease concerns that the tit-for-tat punitive measures will take a break for now.
Euro
The euro rallied on fiscal support prospects, German data that showed the second quarter recession was not as bad as initially feared, and the IFO readings firmly showed the recovery is well on its way. The key to euro rally will be if government leaders continue to deliver more fiscal support. Germany appears poised to extend a state wage support and that should be enough to keep euro bulls happy.
Oil
Crude prices rose slightly as Tropical Storm Laura is expected to become a hurricane and make its way toward oil country on Thursday. Refinery closures alongside massive evacuations near Galveston and the Houston means fuel shortages could occur. With over 80% of oil production halted in the Gulf, energy traders will pay close attention to how much damage happens and when can workers return. Storm Marco made landfall and was downgraded to a tropical depression.
With around 2 million barrels of oil production being offline, it is somewhat surprising that crude is not significantly higher. The hit on driving demand will be significant but the risks to onshore and offshore energy facilities could help drive WTI crude back to the highs seen earlier in the month.
Gold
Gold investors seem undeterred with the recent spat of weakness. A consolidation is always welcomed by bullion bulls if the fundamentals don’t see any major shifts. This puts all eyes on Fed Chair Powell’s Jackson Hole speech on Thursday. Gold has a few bad days as progress in the fight against COVID-19 and easing of US-China tensions took away the need for safe-havens. The risks to the global economic outlook and election uncertainty should see gold bulls defend the $1900 level. Until the stimulus trade is affirmed by governments and central banks, gold could remain in limbo for a while.
