Is the bear market rally top in? US COVID-19 cases weigh on stocks

Intermediate

Macroeconomic/ geopolitical developments

  • Global financial markets continued the indecisive tone seen through mid-June into the end of the month, which has been in relation to competing forces; positive economic data/ strong retail demand/ support from the authorities on the one hand and the rise in COVID-19 cases on the other.
  • The strong rally from mid-May into the first half of June, was driven to some extent by strong demand for stocks by retail investors, supported by positive economic data.
  • An example of which from the past week was the June Flash Purchasing Managers Index (PMI) from Markit for Europe and the US, significantly beating market expectations.
  • However, new outbreaks of the coronavirus globally, plus the growth of the pandemic in some US states sees mounting concerns with respect to unlocking economies.
  • Significant outbreaks have been seen in Australia and Japan, as well as in Germany where the R-rate spiked higher. The authorities in China are still dealing with the Beijing outbreak, but of greatest concern for markets is the coronavirus data from the United States.
  • Many southern US states have seen large increases in the number of COVID-19 cases throughout; Florida Texas, California and Arizona particularly suffering.
covid map US states
  • President Trump has stated there will be no new lockdown, but markets are obviously worried about a continued first wave/ second wave of infections, hospitalisations and possibly an increase in the rate of deaths, that could see the US economy under more stringent lockdown measures again.
  • In the UK, however, the government announced in the past week further easings of many lockdown measures starting 4th July, including the reopening of pubs, restaurants and cinemas.
lockdown eased
  • This is seen as a positive for the economy, but again there are worries regarding the spread of COVID-19, highlighted by the chaotic scenes at UK beaches over the past week.
  • Still focusing on the UK, there has been a negative tone from Europe (particularly from Michel Barnier), regarding the Brexit trade negotiations, highlighting an ongoing impasse.

Global financial market developments

sp500 chart
  • However, from a technical analysis perspective, these consolidation ranges are looking more like chart topping patterns, highlighting that the bear market rallies from March could be over!
  • The hesitancy has been reflected by Forex markets, where most major currencies have moved sideways against the US Dollar.
  • There has, however, been notable US Dollar strength versus the other reserve currencies, the Euro and the Pound, reflecting the growing “risk off” threat.
  • In addition, the Pound is under negative pressures from the above-mentioned EU trade deal issues.
  • Mixed messages from the commodity world, Oil has stalled back from a new multi-month peak, whilst Copper has pushed up to prod at its June high.

Key this week

  • Deaths from and new cases of the COVID-19 coronavirus will stay a key focus, with particular concerns about the rises in numerous US states.
  • Central Bank Watch: Fed Chairman Jerome Powell and US Treasury Secretary Mnuchin both testify to Congress on Tuesday. The Fed Minutes from the last FOMC Meeting are published on Wednesday.
  • On the macroeconomic data side, we get Japanese Retail Trade data, EU Business Climate and German CPI on Monday, Chinese PMI, UK GDP and EU CPI are out on Tuesday. Wednesday then brings a busy data day with Global Manufacturing PMI data released throughout the day by Markit, with the US PMI out from the ISM, Germany posts its Employment data for June, plus ADP Employment data for the US. The US Employment report is out on Thursday as the US Independence Day holiday is being observed on Friday, with US markets closed. Friday does, however, see global Markit Services and Composite PMI data published.
DateKey Macroeconomic Events
29/06/20Japanese Retail Trade data; EU Business Climate; German CPI
30/06/20Chinese PMI; UK GDP; EU CPI; Jerome Powell testifies; Treasury Secretary Mnuchin speaks
01/07/20Markit global Manufacturing PMI; Germany Employment report; US ADP Employment; ISM US PMI; FOMC Meeting Minutes
02/07/20US Employment report
03/07/20US Independence Day holiday; global Markit Services and Composite PMI

Editor in chief

Steve Miley has 29 years of financial market experience and as a seasoned expert now has many responsibilities. He is the founder, Director and Primary Analyst at The Market Chartist, the Editor-in...continued

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