By Deepta Bolaky
Amid a busy economic calendar, the fears of a second wave of coronavirus are mounting forcing market participants to look for some evidence of a reversal or stalling in the improvement of economic data seen in May or June. Many countries have seen a surge in the number of infections over the weeks and now Europe is under the radar following a few clusters of cases. Attention will remain on central banks and governments actions in the face of another round of social restrictions in certain countries.
Last week, the preliminary GDP figures showed that the US is poised to shrink by 32.9% – the deepest decline in decades. The pandemic continues to wreak havoc across the globe and the outlook for the third quarter remains murky. It will be a busy week ahead with employment data and PMI figures standing out. The mounting number of COVID-19 cases in the US will likely affect the purchase of new orders. We may, therefore, see a slow down in the pace of the rebound in the manufacturing sector.
The US labour reports will also be closely monitored. After the drastic job loss in April, jobs reports showed some rebound in May and June. In July, unemployment is expected to slow from 11.1% to 10.7% despite the resurgence of the virus as the data will not reflect the weeks where certain states started rolling back the reopenings.
The state of Victoria which is home to Australia’s second most populated city, Melbourne was plunged into a “state of disaster” on Sunday to fight the coronavirus outbreak. The Premier has also introduced a nightly curfew and other stricter restrictions. The RBA Interest Rate and Monetary Policy Statement meeting will be closely watched – we do not expect any changes in interest rates even though recently the Governor has expressed some views on a cut in interest rates to 0.10% if needed. However, we may see more QE given the soaring number of infections in Victoria. The Aussie dollar has remained pretty resilient despite virus woes.
Aside from the Manufacturing PMI on Monday, the Bank of England meeting on Thursday will likely gather some attention. Even though the UK is also facing some sort of restrictions given the rise in the number of coronavirus cases, the BoE is unlikely going to change its policy outlook this Thursday.
Investors continue to remain focused on the spread of the virus, the amount of stimulus and US earnings reports. Big US tech companies have defied the odds once again and performed strongly despite one of the worst pandemic seen in modern times. In the US share market, the focus will be on the next relief package. The outlook is uncertain as it is heavily dependent on the course of the virus. Investors will rely on more stimulus and interventions in the markets for support.
Gold has been on an unstoppable rally recently as investors are hedging with safe-haven assets given the ongoing uncertainty and geopolitical tensions. The fears of a second wave and the prospects of rolling back reopening measures are overshadowing the recovery outlook. The path of the global economy remains dependent on the course of the virus. After the XAUUSD pair broke the record high seen during September 2011 and rose to an all-time intraday high at $1,981, a tech rally and positive vaccine updates have toned down the bullish momentum.
However, the fundamentals remain bullish even if gold traders may expect to see some correction. In the face of uncertainties, gold is gaining momentum due to a number of factors ranging from the global economic crisis, US election, stimulus packages, continued spread of the virus, geopolitical tensions between US and China, and a fragile rally in the stock market among others.
By Deepta Bolaky
|Tuesday, 04 August 2020
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