Morning Briefing: US equities rally despite rising trade tensions

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Vrasidas Neofytou
Head of Investment Research

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Global financial markets continued their uptrend momentum by adding gains on hopes for global economic recovery as more countries reopen their social and economic activities. The US stock indices hit fresh monthly highs, erasing almost all the pandemic-related losses, despite the escalation in US-China tensions over Hong Kong’s status.

Coronavirus Update:

Global cases: More than 5.62 million
Global deaths: At least 353,000
U.S. cases: More than 1.68 million
U.S. deaths: More than 100,000

Market Reaction:

US markets rose by 2% on Wednesday on optimism about the reopening of the US economy, overshadowing concerns over U.S.-China tensions. The Dow Jones index settled at 25.548, up 2.2%, its highest level since March, while S&P 500 and Nasdaq indices closed higher by 1.5% and 0.8% respectively.

Fig.01: Dow Jones index, Daily chart

The banking, retail and airline sectors which will benefit the most under market reopening, led the gains yesterday. However, stocks that outperformed as stay-at-home orders went into effect in March have lagged in recent sessions, such as Zoom, Amazon and Netflix.

Asian markets were higher this morning, following the overnight gains on Wall Street. Nikkei and Kospi indices led the gains with 2%, while Hang Seng fell 1% on rising tensions. The U.S. has declared that Hong Kong is no longer autonomous following China's move to impose a national security law in the city, raising fears that U.S. sanctions on Beijing may soon follow.

Crude oil:

Crude oil prices fell 4% on Wednesday, for a second consecutive session, as growing tensions in Hong Kong raised concerns over energy demand. In addition, oil prices extended overnight losses after a report from API showed a surprised build-up in crude stockpiles by 8.7 million barrels in the week to May 22, compared with analysts’ expectations for a draw of 1.9 million barrels. The oil traders will be looking to see if data from the U.S. Energy Information Administration later on Thursday matches API.

Fig.02: WTI crude oil, 2-hour chart

WTI crude price settled at $31.37, down by 4.4%, while Brent crude finished the day at $33.64, or down 3.2%. Both contracts have lost almost 10% since hitting their 2-month highs on Tuesday.

Precious Metals:

Gold prices rose 0.5% at $1.720/oz on Thursday, gaining support from the weaker US dollar, EU stimulus plan and the rising tensions between the US and China over a Hong Kong security law. Silver price trades near $17.30/oz while Palladium broke below the key support level of $2.000/oz.

Forex Market:

Euro currency broke above the 1.10 level against the US dollar, ahead of the European Union (EU) Summit aimed to unveil a post-COVID-19 recovery plan of 750 billion euro, to help the Eurozone region recover from the pandemic. EUR/USD pair hits 2-months high at 1.102 supported also from the weaker US dollar amid trade tensions.

Fig.03: EUR/USD pair, 4-hour chart

The DXY-dollar index extended its down trend momentum, breaking below the 99 level amid the Sino-American tensions around Hong Kong status.

Economic Calendar for May 28, 2020 (GMT+ 3:00):

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