Swissquote Bank: Nasdaq renews record, GBP up on encouraging data

August 21, 2020

By Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank

US equity indices edged higher, as Nasdaq (+1.06%) rallied to a new record on Thursday, on concerns that the Covid-19 environment would last longer and maintain the strong demand in tech and online services.

China’s e-commerce giant Alibaba announced better-than-expected second quarter results, with 34% rise in sales growth, a touch lower than the pre-pandemic quarter, where the performance was boosted by China’s most popular Single’s Day shopping festival. The strong numbers hinted at a decent recovery in Chinese consumer demand and boosted appetite in Chinese equities. Shanghai’s Composite gained 0.78% as the CSI 300 (+1.17%) advanced despite uncertain trade relations with the US.

On the trade front, the latest reports suggest that the US oil exports to China should approach record high levels in September as a sign that China works hard towards meeting its phase-one commitments. Chinese and US officials are due to meet soon to review the existing trade deal, but there is not an exact date yet. For now, China remains resilient to US attacks to avoid worsening the situation and disturbing the market, but given the US’ aggressive approach, the outcome of an eventual meeting, if any, seems unpredictable. But investors have low expectations regarding the upcoming US-China talks. Therefore, any good news could give a positive spin to the market sentiment.

Data-wise, the US new jobless claims rose above a million last week. The existing claims fell a touch below the 15 million mark, but the broader picture remains gloomy as the pandemic continues weighing on businesses. The IRS estimates 37.2 million fewer jobs in 2021 compared to their forecast a year earlier.

The US dollar remains vulnerable as the 10-year treasury yield declines to 0.65%.

Inflation in Japan hit a four-month high of 0.3% m-o-m in July, mainly due to a rise in food prices, though the core inflation remained flat at 0% y-o-y.

The Australian services PMI took a dive below the 50 mark on the back of rising coronavirus cases. But the retail sales grew 3.3% m-o-m in July, faster than analyst estimates. The AUDUSD has a steady grip near the 0.72 mark on the back of mixed data, and a softer US dollar.

Due today, the advance PMI figures in Europe and Britain should hint at a continuous rebound in economic activity both in manufacturing and services. But the August numbers could be revised to the downside due to the mounting Covid-19 cases across Europe, although the governments are unwilling to bring strict lockdown measures on the table to spare their economies from a second-wave hit.

There is now a chatter that the rising coronavirus cases in Europe and falling cases in the US could soon be a trigger for the much-expected downside correction in the EURUSD. The pair tested a fresh top above the 1.19 for the third week, but the bulls’ battle becomes harder approaching the thick layer of 1.20 offers.

British retail sales printed a 3.6% m-o-m advance in July, beating the analysts’ estimate of 2%. The yearly figure turned positive for the first time in five months, hinting at a gradual recovery in activity, although the headline figures hide important discrepancies among the underlying businesses. Meanwhile, the public sector borrowing fell unexpectedly below 26 billion pounds in July. The kneejerk positive reaction to encouraging data pushed the GBPUSD above the 1.3250 mark. We could see a further advance in sterling against the weakening US dollar before the weekly closing bell. But the medium-term sterling outlook remains negative on lingering pandemic and Brexit risks.

Gold remains bid above the $1925 per oz. Soft US dollar and yields, and a solid rebound in global inflation expectations amid massive fiscal and monetary stimuli, continues giving support to the yellow metal as investors see opportunity in topping up their holdings in price retreats.

WTI crude is preparing to close the week a touch below the $43 per barrel. The USDCAD remains offered near and above the 1.32 mark as steady oil prices and weak US dollar offer favourable conditions for a further appreciation in the Loonie.