US Open – Ready and Waiting

Stocks pull back after bumper start to the week

Stock markets are paring recent gains on Thursday, with Wall Street eyeing a slightly softer open as Europe drops more than 1%.

There was an abundance of catalysts earlier in the week, both positive and negative, which had stock markets in a bit of a frenzy. The sell-off late last week left markets looking a little vulnerable but the Fed put a stop to that with its corporate bond purchases.

A big risk factor for the markets is Beijing. If the stock market has one major vulnerability right now it’s the dreaded second wave of the virus, which threatens to shut down economies once more. It’s all well and good central banks pumping the system full of cash, if the global economy grinds to a halt again, investors will get very nervous.

Until then, focus will remain on economies reopening around the world and central banks expanding their balance sheets at a phenomenal rate. Barring a damaging second wave, it’s difficult to envisage stock markets suddenly falling out of favour.

BoE adds to global stimulus

The Bank of England today continued to trend of pumping ever more cash to fight the crisis. As expected, the MPC voted to add another £100 billion to its quantitative easing program, with only one member dissenting. The upside was that they believe the economic outlook has improved since the May inflation report and that conditions have improved allowing them to conduct purchases at a slower rate, with the additional £100 billion seeing them through to the end of the year.

Oil edging back to $40

Oil prices are continuing to creep higher again after dipping a little last week. WTI is closing in on $40 again as economic indicators, particularly in the US, continue to look promising. The downside risks to oil prices remain, most notably new waves of COVID – as we’re already seeing – and producers ramping up production now that prices have returned to more acceptable levels. We may see oil face a lot more resistance to rallies than we’ve bcome accustomed to over the last couple of months.

Gold struggling yet again

Gold is coming off a little today as it continues to face challenges on approach to $1,750. The rebound in the dollar continues to hold it back, with the stronger US data for May contributing to that. The dollar is a major headwind for gold and it continues to come back into favour, whether the environment becomes more risk off or the US economy exceeds expectations. It may make gold’s trip higher a bit of a slog in the near term but longer-term factors continue to be supportive.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.

His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.

Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.