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US-China Trade Relations Boosts Equities, Gold Rallies As Dollar Falls

By CMC Markets (David Madden)Market OverviewJun 24, 2020 05:51
uk.investing.com/analysis/uschina-trade-relations-boosts-equities-gold-rallies-as-dollar-falls-200443223
US-China Trade Relations Boosts Equities, Gold Rallies As Dollar Falls
By CMC Markets (David Madden)   |  Jun 24, 2020 05:51
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Stocks are in positive territory as traders have welcomed the news that lockdown restrictions in England will be eased from 4 July.

Europe

The changes will allow pubs, restaurants, cinemas and galleries to re-open. In addition to that, the social distancing rule of staying two metres away from people, will be reduced to one metre. The update didn’t come as a shock as there was speculation about this for a while, but it was welcomed nonetheless. Stocks were already up on the session in advance of the lockdown announcement. President Trump had to clarify that US-China trade relations were intact after Peter Navarro, one of his trade advisors, said otherwise. The confirmation that trading relations were good acted as a boost to sentiment, and it helped distract traders from the health crisis. A region of Germany will go back into lockdown because more than 1,500 workers at a meat packing plant in the district tested positive for Covid-19. The news didn’t have much of an impact on the DAX.

Hospitality groups like Mitchells & Butlers (LON:MAB), JD Wetherspoon (LON:JDW), Restaurant Group (LON:RTN) and Marston’s (LON:MARS) initially gained ground when it was confirmed that pubs and restaurants will be allowed to re-open from 4 July, but now Restaurant Group and JD Wetherspoon are the only ones that are still higher today. The news that the social distancing guidelines will be relaxed to 1m from 2m has also lifted the prospects for the sector as it would struggle to function otherwise. Traders need to be mindful that firms operating in the hospitality business will see revenue streams that are well below the pre-pandemic levels as capacity in venues will be much lower. In addition to that, health and safety costs are likely to jump too, so future profit margins are likely to be squeezed. Cineworld (LON:CINE) shares have jumped too as cinemas are also allowed to reopen from 4 July. Last week the group announced plans to reopen theatres in the UK and US on 10 July.

Intu properties’ shares are in the red as there are concerns the company will fall into administration. The group was struggling in advance of the health crisis as the rise of online shopping has hurt traditional retailers – many of whom rent space in Intu’s shopping centres. The pandemic has sped up the push to e-commerce so Intu might struggle to find credit or a takeover offer from a rival. Should the company go to the wall that would have a negative impact on the sector as the shops in the retail centres would remain closed for a period of time.

Total grocery sales in the four weeks until mid-June jumped by nearly 19% according to Kantar, and online shopping and convenience shops performed well. Of the big four supermarkets in the UK, Tesco (LON:TSCO) saw sales rise by 12.1%. Morrisons and Sainsbury’s posted sales increases of over 10%, while Asda registered a 6.3% lift.

Wirecard (LON:0O8X) shares are up more than 15% today as the stock has recouped a tiny portion of the ground it lost recently. There are questions being asked about the firm’s true cash balance as people are still none the wiser of whether the €1.9 billion cash balance exists or not. Marcus Braun, the former CEO, was arrested on allegations of fraud, but has since been released on bail - which was €5 million.

US

Stocks are showing modest gains on the back of the trade situation with China. Dealers have been reassured that the US-China trade deal is intact, and that has lifted sentiment on Wall Street. The NASDAQ 100 set yet another all-time high as the bullish move in tech stocks continues. The flash manufacturing and services reports showed improvements in June when compared with May, so it is clear the loosening of the restrictions has helped the economy.

Yesterday American Airlines (NASDAQ:AAL) revealed plans to raise a total of $5 billion as a way of beefing up its cash position. The group wants to be well financed ahead of next month, when it will ramp up the number of its flights. In yesterday’s update, it said that $1.5 billion would be raised from a stock and convertible notes offering, but now it plans to raise $2 billion. The stock is down 6%.

Apple (NASDAQ:AAPL) shares has eked out a new record-high. Yesterday the company’s worldwide developer’s conference (WWDC) kicked off and it continue this week. Last night the tech giant announced its new operating system – iOS14. It also revealed that it will be switching from using Intel (NASDAQ:INTC) chips for its Macs to its own chips - that should enhance the performance, while using less power.

FX

The US dollar index is in the red as a mixture of well-received economic reports from Europe and risk-on sentiment has weighed on the currency. The flash manufacturing and services PMI reports from France, Germany and the UK all showed big improvements in June compared with May. The French figures were the most impressive as the manufacturing and services readings were 52.1 and 50.3 respectively- the reports highlight an expansion in activity, which is very impressive. EUR/USD is up on the day on the back of the reports.

GBP/USD has been aided by the UK data from this morning. The flash services and manufacturing PMI reports for June were 47 and 50.1 respectively, both readings easily topped forecasts as well as showing big jumps in activity from May. The announcement that lockdown restrictions and social distancing guidelines will be loosened from 4 July in England has helped sterling too.

Commodities

Gold hit a level last seen in October 2012. The slide in the US dollar has encouraged buying as the inverse relationship between the two markets has been strong lately. It is odd that gold is driving higher at a time when stocks are up too as the asset typically rallies when equities tumble

WTI and Brent crude are up as the conformation from President Trump that US-China trade relations are intact has assisted the energy market - China is the largest importer of oil in the world. Smooth trade relations between the two largest economies in the world bodes well for oil. It is worth remembering the number of active oil and natural gas rigs in the US and Canada has fallen to the lowest on record, so that is a factor too.

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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US-China Trade Relations Boosts Equities, Gold Rallies As Dollar Falls
 

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US-China Trade Relations Boosts Equities, Gold Rallies As Dollar Falls

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