Daily summary: Global equity markets continue the bullish momentum

European indexes extended gains on Wednesday as markets continued to rally on optimism over economies emerging from coronavirus-led shutdowns. Recent PMI data showed the Eurozone business activity contraction eased in May, while China's services sector returned to growth. DAX 30 jumped  3.8% to 12,474, its highest level since February 26th. CAC 40 added 3.5% and FTSE 100 finished 2.6% higher.

 

Investors in the US also remain optimistic over an economic recovery  from a coronavirus-led slump amid continuing social unrest in the country.  President Donald Trump's administration  banned Chinese passenger carriers from flying to the United States since June 16, putting pressure on Beijing to allow US air carriers to resume flights amid rising tensions between the two largest economies in the world.
Today's decision penalizes China for failing to comply with an existing agreement on flights between the two countries.

However market sentiment was lifted after recent data from the US pointed to a slowdown in private job shedding and in non-manufacturing output. ADP report said private employers laid off another 2.76 million workers, lesser than an expected 9 million job losses. Meanwhile Institute for Supply Management's (ISM) reading, showed that U.S. services industry activity bounced off an 11-year low in May. On the other hand, today's data still indicate that the economy is shrinking. A weak labor market will not generate consumption or greater economic activity. ISM index value below 50  indicates that purchasing managers are still concerned about the economic outlook. So one can see an improvement compare to the previous month, but in real terms the situation is still bad. It seems that investors among all these poor data are trying to find information that would indicate that the economic situation is slowly stabilizing, expecting a clear improvement in the near future. Therefore, there is a risk that when this good information finally arrives, it may lead to profit taking and the current rally could end. During today’s session Dow Jones rose 1.48%, S&P 500 gain 1.0% and Nasdaq is trading 0.5% higher. 

 

As expected, the Bank of Canada left interest rates unchanged at 0.25%. BoC reduces the frequency and volume of some market operations that aimed to provide liquidity on the market. The central bank pointed out that Canada avoided the worst case scenario presented in the April report. Still, one should expect a decline in GDP in the second quarter at a double-digit rate. The bank maintains a large asset purchase program. At the same time, BoC points to the possibility of adjusting monetary policy if necessary, but no mention has been made that interest rates could be cut further.

US crude oil stocks unexpectedly fell by 2.077 million barrels, but these figures did not cause any significant market reaction as investors' attention is focused on other issues. OPEC meeting which was scheduled for tomorrow probably will not take place and there is a good chance that it will not be held next week either. Saudi Arabia is to urge the meeting to be moved to mid-June or even to the second half of June. This was quite negative information for the oil market. Previously it was reported that Saudi Arabia and Russia decided to extend the agreement by one month. During today’s session WTI price drop  0.7 % and Brent fell 0.8 %.

Gold prices continue to decline on Wednesday. Gold futures for delivery on the Comex exchange were down 2% at $1,699.95 an ounce, while spot gold was down 1.8% at $1,697.37 an ounce. Gold is on course for its first close below $1,700 in over a month.

 

A lot is on the agenda tomorrow. ECB decision on interest rates and later press conference of the ECB president are undoubtedly the most important and may have major impact on the markets. The ECB is widely expected to say it will expand its pandemic-driven bond fund by another 500 billion euros ($560 billion). However, regular data also should be watched closely as US  jobless claims, trade balance figures from Canada and Australia will be released tomorrow.