Stock price inflation, soft German data, rising gold

US stocks gained for the fifth straight day, after the rally in Shanghai boosted the risk sentiment across the global stock markets on Monday.

Nasdaq hit a fresh record, as Amazon traded above the 3000 handle for the first time on increased demand for its ecommerce and cloud-computing services. Demand in these services sure accelerated with the pandemic, but probably won’t deteriorate as things get back to ‘normal’, given the digitalization of economies and services regardless of external factors.

Meanwhile, as we move towards the November presidential election in the US, talks of who would win start getting on the wires. It appears that the Trump approval rates are dwindling with the number of deaths per capita, and his plans of reopening despite the aggravating health crisis doesn’t see support from his public. The latter brings forward the possibility of a Biden win. And because markets are obstinately optimistic on share performances, there is rising voices from investor communities that the Biden victory wouldn’t be so bad for the stock markets. This hints that investors are ready to carry the actual stock rally to higher levels no matter what. Rising coronavirus cases and health risks amid premature business reopening, US election uncertainties or downgraded revisions to the economy; nothing matters. At this point, it is hard to say whether the market rally is backed by a genuine risk appetite or is simply a share price inflation amid the massive Federal Reserve (Fed) intervention. Both ways, stock investors win.

On the risk haven deck, the demand remains firm. The yen and the Swiss franc consolidate past weeks’ gains against the US dollar. The US 10-year yield remains capped below the 0.70% handle.

Gold tests the $1790-offers per oz digging its way towards the $1800 mark, slowly but surely. Investors have a firm grip on the precious metal on the back of little conviction on the actual risk rally and depressed sovereign yields. At this point, we observe that the stock price inflation leads to a gold bubble, as well. If the stock markets continue bloating, there is little reason for gold to do the opposite.

In the FX, the US dollar index edges lower as investors find interest in more lucrative and promising currencies. In this respect, the cyclical currencies such as antipodeans see improved demand. The AUDUSD is fighting back the 0.70 offers with a stronger case for a move above this level as positive trend and momentum indicators strengthen. The Reserve Bank of Australia (RBA) maintained the interest rate at the historical low of 0.25% and pledged to stay pat until material progress is made towards full employment and the 2-3% inflation target.

Stocks in Sydney rose in the afternoon session on the back of a dovish RBA statement, and the rising Chinese stocks. Shanghai’s Composite (+1.58%) extended Monday rally as investors backed the government’s call for a ‘healthy’ bull market to tackle the Covid crisis. We believe a large amount of speculative orders are behind the actual rally in Chinese stocks, though there are very valuable names in China that deserve investors’ attention, led by Chinese tech giants including Tencent and JD. But stock picking is important to avoid being busted by a sudden profit taking in such slippery market conditions.

Nikkei (-0.58%) on the other hand remains on the backfoot, due to soft economic data and strong yen.

Activity in US and European futures hint at consolidation at the open, but the market direction remains tilted to the upside on the back of a resilient optimism in risk assets.

Oil traders remain hesitant to strengthen their long positions above the $40 per barrel, as the stock price inflation doesn’t necessarily improve the underlying supply-demand dynamics in the oil markets. The rebound in global industrial production and US inventories data should distinguish between a further advance towards the $45 mark, and a correction below $40.

The German industrial production rebounded 7.8% m-o-m in May, less than 10% anticipated by analysts. Combined to yesterday’s softer-than-expected factory orders, the data warns that the economic rebound in Germany may not be as strong as priced in by the market. The EURUSD gave a negative kneejerk reaction to German figures but buy-the-dip remains the consensus trade in EURUSD ahead of the July 9 Eurogroup meeting, where the 750-billion-euro fiscal rescue package could finally see the daylight.

Cable consolidates near the 1.25 level, mostly driven by the global US dollar appetite. Price advances are interesting top selling opportunities for sterling bears as lingering Brexit uncertainties should cap the topside near the 200-day moving average, 1.2685.

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