US Open – Not the Chill We All Crave

Slow start to the week

Stock markets are edging higher in a relatively chilled start to the day, as we navigate through the low-tier economic data portion of the week.

I say chilled as I sit here in London in the midst of a summer heatwave, drained of energy and enthusiasm and looking at the markets thinking I’m not the only one. The prospect of a staycation is suddenly quite attractive, as UK holidaymakers anxiously check the news every day fearing they may be forced to quarantine on arrival home while missing out on the kind of weather that we Brits crave year round then typically complain about when we get it. I think I may have gone off on a bit of a tangent.

While domestic holiday resorts may do okay out of the staycation trend this year, the same will not be true of other parts of the economy. The data this week is likely to show unemployment rising and the economy shrinking by more than 20% in the second quarter. I don’t think there’ll be much dwelling on the data though, especially with the Bank of England having significantly improved their growth forecast for this year on Thursday, albeit with a sharp annual contraction on the cards.

On Capitol Hill, lawmakers failed to pass a new relief package on Friday which prompted Trump to sign executive orders on Saturday on unemployment benefits – at a reduced rate of $400 a month, from $600 – evictions, payroll tax and student loan repayements. While the legality and details of the orders will undoubtedly be challenged, it may temporarily ease any market fears, while angering a sidelined Congress at the same time.

Tensions between the US and China will remain at the forefront this week after the Treasury sanctioned officials linked to the controversial national security law. This comes after Trump signed executive orders against WeChat and TikTok and effectively forcing through the sale of the latter to an American firm, with Twitter now entering the frame alongside Microsoft. Retaliation from China is inevitable.

Oil bounce as Aramco offers bullish assessment

Oil prices are bouncing back after two days of declines, as demand in Asia returns close to pre-pandemic levels, according to Saudi Aramco. WTI and Brent are up around 1% to trade near the upper end of their two month ranges. The breakout last week didn’t gather much momentum but more assessments like this may change that. Producers are looking to gradually increase production again from this month, something traders are clearly quite comfortable with.

Dollar rebound tests gold resilience

The rebound in the dollar on Friday and today has taken the shine off gold, which has tumbled from around $2,070 to $2,015. A test of $2,000 would be very interesting, with it being a key psychology support for the yellow metal. A break could exacerbate any move to the downside and see $1,980 support quickly put to the test. That could all depend on the dollar which is forming a double bottom of its own. A break above last Monday’s peak could trigger a bullish corrective move in the dollar, back towards the June/early July support zone and put considerable pressure on gold prices.

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