ZFX analyst Jacob Leung said that gold market was benefited due to the rising tension between China and the US. However, the “risk off” mode seems has no effect on the stock market. There may be some reason behind. It may be due to the rally of oil prices, Fed’s policies or the hopes on further stimulus policies, which all are supportive to the financial markets, no matter these were just short term or sentiment oriented only.
US President Trump has warned in an interview that he could “cut off the whole relationship” with China, further escalating the tension between China and the US. He said that he is very disappointed with China in handling the spread of the coronavirus. In addition, he also pointed out that he may examine those Chinese companies listed on the US stock exchange, regarding US accounting regulations. The market is worried and in fact the negative factors are more obvious in the market, once the rumor of the M&A fade out, it is likely to end this short-term move.
Fed Chairman Powell said that the economic outlook of US was highly uncertain and subject to significant downside risks. He believed that more stimulus measures are needed to ease the economic downturn from the global pandemic. His pessimistic speech hit the market sentiment. In addition, he pointed out that the Fed was not considering negative interest rates as one of the tools. The tension between China and the United States has now become a key concern, triggering risk aversion. The Federal Retirement Thrift Investment Board (FRTIB) announced that it will postpone its investment in some Chinese companies which including in the MSCI. The market believes that it was a decision under the instruction by Trump. Furthermore, Trump said on Twitter that “dealing with China is a very expensive thing to do” which was clearly not favorable to China-US relation.
Market sentiment became cautious on Tuesday. The Volatility Index (VIX) bounced back and all three Wall Street indexes dropped, of which the Dow lost more than 450 points. Investors are worried the second wave of coronavirus infections, especially after the reopening of the US economy. White House health advisor Fauci warned that the outbreak in the US has not yet under controlled, and the situation may deteriorate if the economy restarts too soon.
The market is concerning the rising tension between China and the US, triggering risk aversion. Earlier, US President Trump said that he is having “a very hard time with China”. He also said that he hasn’t decided how to deal with the trade relationship, showing doubt of the implementation of the phase 1 trade agreement. On the other hand on Monday, Global Times quoted source from Chinese officials, saying that “more hawkish voices have emerged”, calling for renegotiation. As dissatisfaction with the phase 1 agreement has been growing in Beijing, some voices even suggested to invalidate the agreement.
The Nonfarm Payrolls last Friday showed 20.5 million job cuts in April, the biggest drop in history since 1939. However, the figures are still better than the expectations of 21.5 million job cuts. The unemployment rate skyrocketed to 14.7%, the highest level since the Great Depression, which was still lower than market expectations of 16%.
The initial jobless claims fell to 3.169 million last week, a drop of five consecutive weeks, which was still more than the expectations, around 3 million. The continuous claims rose to 22.647 million, far more than 20 million which was expected. The numbers indicate that the current situation of the US labor market was worrying and forecast a very gloomy result of the NFP on Friday, especially after the ADP employment report. It is now expected 21.5 million job cuts in April NFP and the unemployment rate will jump to 16%.
President Trump said that he would review the Phase 1 trade deal signed in January, whether China has fulfilled the commitment regarding the purchase of US goods. He said that he is able to issue a report within a week or two. Investors were worried about the tension between China and the US after the news, triggering the market move. ZFX analyst Jacob Leung said that, oil prices finally retraced and the market sentiment turned a bit negative on Wednesday, and the ADP figures also “more or less” triggered the safe-haven demand. Pay attention to the strength of the greenback, which is likely to reflect change in the market sentiment.
Oil prices continue the rebound “move”. The June contract of WTI crude futures surged over 20% again, a big rally of 5 consecutive days, which is supportive to the market sentiment. The market is still looking forward to the reopening of the global economy thus pushing the energy demand, boosting the oil prices. But, Fed Vice Chairman Clarida said that, the US economy is already in recession and the unemployment rate is going to surge to numbers that probably a record high since the 1940s. The pessimistic speech hit the sentiment but the three major Wall Street indexes still edged higher.
Oil prices are still the key concern of the market. It is reported that the crude inventory builds at Cushing, a key place for WTI physical delivery and storage, is slower than expected. In addition, the market expects countries will restart their economies by steps, and the OPEC+ have also begun the production cuts under the new agreement, which also further boosting the oil prices. The June contract for WTI crude futures climbed above the $20 mark, a rally of four consecutive days.