Markets in Europe are higher this morning. Investors have major earnings reports to digest and overnight data that showed a bigger than expected acceleration in the pace of growth in U.S. manufacturing activity in July. Discussions continue over a new stimulus package in the US with negotiators saying they will work “around the clock” to get the deal done.
- The IBD/TIPP Economic Optimism Index in the US rose to 46.8 in August of 2020 from 44.0 in the previous month, remaining in the negative territory for the fifth consecutive month, as Covid-19 continues to take a heavy toll on the labor market. Still, Americans became less pessimistic about federal economic policies, the six-month economic outlook and the personal finances outlook on hopes that Congress will approve a second stimulus package amid a resurgence in coronavirus infections and restrictions.
- Spot gold hit a new all-time high of $1,995 per ounce on Tuesday, as investors fear that a spike in coronavirus cases could hamper the global economic recovery. Gold has advanced sustainably since the pandemic hit the world economy back in March as investors turned to safe havens and as governments and central banks across the globe stepped up efforts to help mitigate the negative impact of the outbreak on activity and demand. In addition, a new coronavirus relief bill to be approved in the US as soon as this week, alongside expectations of fresh monetary policy stimulus from the US Federal Reserve weighed on the dollar.
- New orders for US manufactured goods rose by 6.2 percent from a month earlier in June 2020, following a revised 7.7 percent jump in the previous month and beating market expectations of 5.0 percent advance. It was the second consecutive month of strong new order growth as the manufacturing sector recovers from sharp disruptions in March and April due to the coronavirus outbreak. Demand for transport equipment increased 20.2 percent (vs 78.8 percent in May) boosted by vehicles while new orders for civilian and defense aircraft fell sharply. Demand was also higher for machinery (3.0 percent vs 1.1 percent), fabricated metal products (5.0 percent vs 6.0 percent), primary metals (4.7 percent vs 8.4 percent) and electrical equipment, appliances, and components (1.9 percent vs -0.2 percent).
- Industrial producer prices in the Euro Area increased 0.7 percent from a month earlier in June of 2020, recovering from a 0.6 percent fall in the previous month and above market expectations of a 0.5 percent rise. It was the first gain in producer prices since January, as cost rebounded for energy (3.1 percent vs -1.6 percent in May), intermediate goods (0.2 percent vs -0.4 percent) and capital goods (0.1 percent vs -0.1 percent). Meantime, cost of durable consumer goods remained unchanged (vs 0.1 percent) while non-durable consumer goods went down 0.1 percent (vs -0.6 percent). Year on-year, producer prices dropped 3.7 percent, after declining 5 percent in May and compared with forecasts of a 3.9 percent fall.
- The Reserve Bank of Australia kept the cash rate unchanged at a record low of 0.25 percent during its August meeting, and flagged that it would start a fresh round of bond buying tomorrow as the yield on 3 year Australian Government Securities has been a little higher than the target of around 25 bps over recent weeks. Policymakers said that a recovery from the COVID-19 crisis is now underway in most of Australia. This recovery is, however, likely to be both uneven and bumpy, with the outbreak in Victoria having a major effect on the economy. The board also said that fiscal and monetary stimulus will be required for some time, promising to keep the cash rate target at current levels until progress is made towards full employment and until policymakers see inflation remains sustainably within the 2-3 percent target.
- On Tuesday: European stocks finished mixed as weak quarterly results from Diageo and Bayer weighed on sentiment, while BP jumped even as the firm cut its dividend for the first time in a decade as it promised to pay out 60% of surplus cash through share buybacks. Meanwhile, investors awaited signs of progress on US coronavirus relief package. US stocks showed a lack of direction for much of the trading session but managed to end the day mostly higher. The major averages benefited from a late move to the upside after spending the day bouncing back and forth across the unchanged line. Asian stocks rose broadly after Wall Street’s main indexes rose overnight on data showing a bigger than expected acceleration in the pace of growth in U.S. manufacturing activity in July and Microsoft’s statement confirming that it is in talks to purchase the U.S. operations of Chinese-owned video-sharing app TikTok.
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