US Update: Stocks higher on fiscal stimulus hopes, Sunak’s stimulus booster, Oil anchored, Gold roars, Brazil’s gloom

The economy might be rolling over, tensions between the US and China are not going away, and Wall Street might start pricing in a Biden presidency, but US equities want to keep on climbing higher on fiscal stimulus expectations.  After UK’s Sunak showed his plan to save UK jobs and stimulate the economy, investors immediately began believing that next month the US will likely follow suit.  The COVID-19 updates are worrisome, and no one expects to get any meaningful guidance this earnings season, but the risks do not outweigh all the stimulus efforts.  The place to be is still hot-tech stocks and they are likely to keep this stock market party going strong. 

GBP

UK’s Sunak just gave a lesson to the rest of the world on how to deliver fiscal policies to foster next phase of stimulating the economy.  The UK reopening of the economy did not see strong demand and many companies were burning cash.  Sunak’s stimulus plan has economic measures totaling 30 billion pounds and delivered fresh tax cuts and job retention bonuses.  The UK was fast with their job protection scheme earlier in the coronavirus pandemic and just showed urgency in delivering much needed support.  Financial markets expected the temporary tax cut on home purchases, but were not sure if Sunak would deliver a cut to VAT.  Hospitality needed much support following huge job cuts and will see some support from with the cut to VAT on hospitality and tourism.  The incentives are plentiful and will likely be well received by investors.

The British pound may have found its bottom as the UK seems unified in delivering a fiscal stimulus plan. 

The UK just reminded Wall Street that the global stock market rally is not likely going away anytime soon as governments globally will now be delivering massive fiscal stimulus responses. 

Oil

After multiple failed attempts to break above the $41 level, WTI crude seems poised for a pullback as oil demand seems to be faltering in the US.  Now past the peak of the summer driving season, investors are skeptical that demand will improve much as the coronavirus continues to hurt demand in some key driving states and as airlines take back some of their optimism on flight increases. 

Crude prices jumped around after the EIA weekly oil inventory reporter showed a larger-than-expected headline build, but a strong draw with inventories and a surge by refiners. 

Gold

Gold is surging as investors begin to price in the next round global fiscal stimulus, as the lingering coronavirus will keep the economy needing further support.  The biggest risk to the global stock market rally is inflation and that should cement gold’s outlook to record high (in dollar-terms) territory later this year.  The Fed has acknowledged that corporate bond buying could slow if market conditions improve further, but the intensifying first wave of the virus in the US will likely see that not happen anytime soon.  Gold is roaring higher as a number of uncertainties to the outlook persist and as the dollar slides. 

Brazil

It is hard for investors to get excited over Brazilian assets after Brazil President Jair Bolsonaro tested positive for Covid-19.  Bolsonaro continues to dismiss the severity of the coronavirus and his lack of seriousness in stopping COVID-19 has everyone expecting the crisis to widen in Brazil. 

The Brazilian real has been battered on political uncertainty, the COVID-19 response, and expectations for a deep and long-lasting recession.      

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst - The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geopolitical events and monetary policies around the world. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC and Bloomberg, and is often quoted in leading publications including the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University.
Ed Moya