• US stocks struggle for direction
• OPEC+ agreed to extend production cuts until the end of July
European indices closed mixed in another volatile session on Monday. Recent German industrial production data came in well below analysts’ expectations as factories were closed during the coronavirus lockdown. Head of ECB Christine Lagarde reassured that measures taken by the ECB in March were critical in removing the tail risk of the COVID-19 pandemic and will continue to be crucial in supporting the return of inflation towards the 2% target. Lagarde reinforced the ECB is determined and ready to adjust all of its instruments, as appropriate, to support the economy but warned that it is important to adopt quickly the European Commission’s proposal for a revised EU long-term budget to give more certainty and confidence to citizens, businesses and financial markets and that any delay risks generating negative spillovers and driving up the costs, and hence the financing needs, of this crisis.
Looking at the current stock prices of many companies around the world, one might think that nothing bad has happened in recent months. Current company valuations do not indicate that many economies will experience a double-digit decline in the second quarter of this year. However, after recent stock market rallies, profit taking may occur. The only question is whether we will deal only with the aforementioned profit taking, or will it be a beginning of a larger correction?
It is worth recalling that the US economy unexpectedly added 2.5 million jobs in May. This was quite a surprise, considering that the United States is the country with the highest number of coronavirus infections. Despite this fact, employment in the US has increased. At least in theory (this is a statistical model that has quite a large variation). Employment figures show that the economy is slowly recovering from a pandemic decline. What's more, the OPEC + group decided to extend the production cut by a record 9.7 million barrels per day, until the end of July, which brings hope for the entire energy sector. All this news should trigger a wave of optimism in the markets. However, nothing like this has happened so far.
One should remember that when a given scenario is fulfilled, many investors decide to take some profits and this can happen in current situation. While positive moods prevail and many investors are still willing to buy, some market participants are taking advantage of increased liquidity and close their positions. This does not mean the end of the upward impulse, but only a short-term stop. Unless new risk factors appear on the horizon. It is noteworthy that coronavirus is gaining strength again. Over 113 thousand new coronavirus cases were reported yesterday. On Friday 130,620 were reported, which is the highest number since the pandemic began. Meanwhile 7-day average currently stands at 120 521. Nevertheless, it seems that at least for now the pandemic is under control and macroeconomic data will improve due to the re-opening of the economies. This should support, at least in theory, further increases on global financial markets.
The Canadian Dollar was one the best-performing major currencies recently, supported by robust risk sentiment and resilient commodity prices. The USDCAD has reached the lowest level since early March and is slowly moving towards important level of support at 1.3328 that contained the pair from August 2009 until the end of February/early March 2020. Source: xStation5
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