Daily summary: Stock rally loses momentum

6:40 PM May 21, 2020

• Global stocks lower amid US-China Tensions
• PMI readings  showed that major economies continue to contract at a steep pace
• US Initial Jobless Claims Top 2.4M

European markets closed in the red at the end of a volatile session on Thursday amid rising US-China tensions. The US Senate a passed a bill  that could prevent some Chinese companies from listing their shares on US exchanges if they fail to comply with the US audits for three consecutive years. Also President Trump's new attack on Beijing’s handling of the pandemic raised concerns about the trade deal reached last year. On the economic data front, the latest claims report showed 2.438 million people filed unemployment claims during the week ended May 16th, slightly above analysts’ forecasts of 2.4 million and bringing the total to near 39 million since the beginning of pandemic. Today a lot of PMI readings for Germany, Great Britain, France  and US were published. Some of them turned out to be better than expected, nevertheless it is worth stressing out that all of the readings came in below 50 points, which means that the economy is shrinking. During today’s trading session DAX 30 lost 1.4%, CAC40 dropped 1.2 % and FTSE 100 finished 0.9% lower.

Wall Street's main indexes dropped about 1% on Thursday as investors worried about escalating U.S.-China trade tensions and concerns over a quick rebound from a coronavirus-led economic slump. Later in the session US equities managed to recover some of the early losses. Dow Jones is currently down 0.27%,  S&P500 fell 0.55% and Nasdaq is trading 0.58 % lower.

However despite grim macroeconomic outlook, the S&P 500 is less than 15% from its historical highs. Recent rally was driven mostly by technology companies  such as Facebook or Amazon, which are currently trading at their record levels. The Nasdaq technology index is only a few percent away from its historical highs, and, for example, Amazon's capitalization of $ 1.25 trillion is greater than all companies from the German DAX index, which includes 30 companies.  However from a technical point of view, the S&P 500 might be overvalued. According to Bloomberg,  S&P 500 is trading approximately 10% above the 50-day average. Last time similar situation occured in 2009. If the story were to repeat itself, there is a chance that now the S&P 500 might start trading in a sideways range.

Gold price is drifting away from a near eight-year high, heading for its first loss in three sessions on Thursday, as the strong US dollar put more selling pressure on the metal. “Gold seems to have lost a little momentum since breaking above $1,750 and the rise in the dollar today doesn’t seem to be helping,” “However, the enormous amount of monetary stimulus in the system, the need for that to continue for some time and the inflation risk are all bullish for gold in the longer term,” OANDA analyst Craig Erlam said in an interview with CNBC.

Japan's Consumer Price Index, BoJ interest rate decision and Monetary Policy Statement will be the key releases of the Asian session while UK retail sales  and ECB Monetary Policy Meeting Accounts will be on watch during European trading hours.

Gold failed to break above key $1750.00/oz resistance level and the price pulled back. Metal is currently testing 20 MA (green line). Key support is located at round $1700.00/ oz level. Source: xStation5

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