V-shape stock rally extends. Is the global economy following?

Intermediate

Macroeconomic/ geopolitical developments

  • The strong “risk on” phase that resurfaced from mid-May into the end of last month has been further reinforced in early June, driven by further positive macroeconomic data and fiscal and monetary policy stimulus announcements from Europe, alongside geopolitical developments.
  • Better than expected economic data in early June is now pointing to a potential V-shaped economic recovery for many national economies alongside the global economy, joining the strong V-shaped recovery that has continued to develop across global stock averages.
  • On the data front, global Markit and Institute of Supply Managers (ISM) Manufacturing, Services/ Non-Manufacturing and Composite Purchasing Managers Index (PMI) broadly beat expectations in the past week.
  • Moreover, the US Employment report Friday posted a significant upside surprise, with the Unemployment rate coming in at 13.3%, with economists forecasting 20%. The Non-Farm Payrolls data was expected to fall 7.5 million but came in rising by 2.5 million.
  • On the policy front, progress for a €750bn EU recovery fund continues, which was bolstered on Thursday by monetary policy stimulus from the European Central Bank (ECB) committing to a larger than expected €600bln addition to the Pandemic Emergency Purchasing Programme.
  • In addition, Germany has agreed to a fiscal policy stimulus of €130bn, equivalent to 4% of GDP.
  • The positive global outlook from the perspective of surging stock indices continues, despite ongoing tensions between China and many nations globally, notably the US.
  • In addition, protests and tensions within the US surrounding the Black Lives Matter movement have not impacted on the strong “risk on” phase.
Black lives matter
  • The number of new cases and deaths from the COVID-19 virus continues to decline in most European nations, although some US States are seeing rising numbers.
  • European nations and US States continue to relax lockdown restrictions and restart their economies.

Global financial market developments

  • The strong rally in global stocks has seen the major global averages build on the late May bullish breakouts from April-May ranges, with many indices overcoming important technical levels from the early March bear moves.
  • In the Forex world, the “risk on” theme has accelerated with the “risk currencies”, the Australian, New Zealand and Canadian Dollars amongst the Majors, strengthening significantly.
  • The US Dollar has weakened against most currencies, with the Euro staging an impressive rally, alongside a positive technical development for GBPUSD.
gbpusd chart
  • But the Japanese Yen has been demoted to the weak currency across the Majors, given the “risk on” environment.
  • In the commodity space, oil continues to rally to multi-month highs, whilst base metals have extended to recovery highs, with Copper notably higher.
copper chart

Key this week

  • Central Bank Watch: Wednesday brings the Federal Open Market Committee (FOMC) meeting and press conference.
  • Thursday sees the Eurogroup meeting, with the Ecofin meeting Friday.
  • Macroeconomic data of note includes; Japanese Gross Domestic Product (GDP); German Industrial Production; EU GDP; US Consumer Price Index (CPI); US Jobless Claims; UK Industrial Production and GDP.
  • Deaths and new cases from the COVID-19 coronavirus will remain in focus with concerns about a second wave, as lockdown rules continue to be relaxed globally.
DateKey Macroeconomic Events
08/06/20Japanese GDP; German Industrial Production
09/06/20EU GDP
10/06/20US CPI; FOMC meeting and press conference
11/06/20US Jobless Claims; Eurogroup meeting
12/06/20UK Industrial Production and GDP; Ecofin meeting

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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