Equities rise, USD retreats – Gold, oil stable

Asian stocks kicked off the week on a strong positive note; hopes for more policy support being pretty much the only explanation to the early week optimism.

Shanghai’s Composite jumped more than 4% on a sudden peak in trading volumes, the Hang Seng rose 3.45%. China will release June economic data over the next two weeks and expectations are solid rebound in activity and higher inflation. Yet, it is unsure whether today’s bullish run is caused by the solid data expectations, or simply speculation.

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Stocks in Tokyo gained 1.75%, while the ASX 200 (-0.31%) underperformed despite bullish Chinese stocks on new containment measures in Melbourne to contain the virus contagion.

US futures were well bid in the overnight trading session, pointing at a solid start after a holiday extended weekend. The Dow (+1.30%) and Nasdaq futures (+1.23%) gained, as treasury yields edged higher.

Gold remained little changed near the $1770 per oz.

Activity in FTSE (+1.43%) and DAX futures (+2.13%) hint at a firm positive open in Europe, as well.

It appears that global investors are less sensitive to rising Covid cases, but as enthusiastic about the extra stimulus measures. But the ugly truth is the second half of the year starts under the shadow of second-wave fears and dashed hopes of a swift economic rebound. Whether we would see the economic reality reflected in asset prices is another question. The massive injection of cheap liquidity will likely continue inflating the asset prices. The ultra-low sovereign yield environment should continue supporting the equity prices. The Federal Reserve’s (Fed) liquidity supply soared by near 20% this year to $18.4 trillion and more is to come.

Nevertheless, the stock price inflation is not a sustainable boost for oil prices, as higher asset valuations don’t necessarily mean improved economic activity in the foreseeable future. Oil traders are relatively more worried about the rising coronavirus cases and renewed containment measures. Appetite in WTI remains limited above the $40 per barrel. Failure to break the deadlock near this level could encourage a medium-term downside correction. On the upside, solid offers are eyed before the $45 mark, near the 200-day moving average ($44.50).

In the FX, the US dollar index slipped below the 97 mark.

The EURUSD sees firm support on the back of a solid risk appetite and signs of compromise from the frugal four on the proposed 750-billion-euro fiscal rescue package before the July 9 Eurogroup meeting. The latest CFTC data confirms a persistent increase in net speculative long positions in euro on the back of a rising conviction in euro pairs, including the EURUSD, the EURJPY and the EURGBP. If supported by solid economic data, the single currency should make an attempt on June high, 1.1423.

Released this morning, the German factory orders improved 10.4% in May, lower than 15% expected by analysts. Due later today, the European retail sales may have rebounded 15% in May, following more than 11.7% in the previous two months.

Tomorrow, German industrial production data should print a swift rebound in May. Moving forward, we know that German car manufacturers ramped up production by 80% in June. Though the intimidating figures are mostly due to the very low activity in previous months and remain below normal levels, the signs of pickup are encouraging for growth prospects, and the euro.

Cable is preparing to fight back offers above the 1.25 mark. The sterling remains bid against a broadly softer US dollar but offered against the single currency. Last week’s Brexit negotiations ended on a familiar note of non-progress on the back of severe divide between the two parties. Hence, price advances in sterling continue providing interesting top-selling opportunities for the medium-term bears as the UK walks firmly towards a no-deal Brexit.

Elsewhere, the antipodeans are better bid on solid risk sentiment. The USDCAD is back below its 200-day moving average (1.3545) although gains in Loonie could tip backwards on the back of stagnating oil prices, and the rising possibility of a downside correction in oil markets.