Markets Update Thursday 28/05/2020 – Spring Feelings

Frankfurt – 28/05/20

Spring Feelings

Hopes for an early vaccine against the coronavirus and a rapid economic recovery have been driving stock prices recently. The current rally is mainly based on the belief that the pandemic has already been brought under control and that economic recovery can be accelerated thanks to the measures taken by governments and central banks worldwide. The additional impetus is now being provided by the prospect of a gigantic 750 billion euro economic stimulus package from the EU Commission.

Investors continue to ignore hard facts, and the Hong Kong powder keg. Some market observers believe that the stock market is now massively overbought. An imminent setback is inevitable.

Concerns about the current situation in Hong Kong and the tense relationship between the USA and China are also still being ignored in the market. China’s People’s Congress has now approved the plans for the controversial security law in Hong Kong despite massive international criticism. Because of the Hong Kong dispute, the USA is considering, according to insiders, withdrawing the Special Administrative Region’s preferential customs status. China could then retaliate and impose similar sanctions on the US.

US Markets at a glance

Signs of fatigue came up on Wall Street today. The US leading index Dow Jones started 0.58 per cent stronger and then defended its gains against an interim setback. Shortly before the close of trading, it fell back into the red, ultimately closing 0.58 per cent lower at 25,400.64 index units. The NASDAQ Composite also ended the day in the red with minus 0.46 per cent at 9,368.99 points.

There was no good news from the US economy: In the first quarter, the US economy shrank somewhat more than analysts had expected due to the corona crisis. Orders for durable goods also collapsed again in April. Real estate data also turned out weaker than forecast.

Far East Markets at a glance

Some Asian stock markets were benefiting from positive Wall Street data and hopes of a rapid economic recovery. At the same time, elsewhere, the heightened conflict between the US and China over the planned new security law for Hong Kong weighed heavily.

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In Tokyo, the Nikkei gained 2.32 per cent to 21,916.31 points by the end of trading. On the Chinese mainland, the Shanghai Composite was 0.33 per cent higher at 2,846.22 index points. In Hong Kong, however, the Hang Seng ultimately ended weaker, losing 0.72 per cent to 23,132.76 points.

European Markets at a glance

Europe’s stock markets were showing positive signs on Thursday. The EuroSTOXX 50 gained 0.25 per cent to 3,058.75 index points at the start of trading and continued to trend higher afterwards. At the closing bell, the index increased by 1.42 per cent to 3,094.47 points.

The German stock market also recorded further gains on Thursday. On Thursday the leading German index Dax 30 climbed by more than one per cent to 11,781 points. It was the fifth consecutive day of gains. The TecDAX finally gained 2.04 per cent to 3,172.96 index units. 

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Forex, gold, oil and crypto

The euro benefited from the growing confidence in the financial markets in the foreign exchange market. The EU Commission’s multi-billion-euro Corona recovery plan also continues to provide support. The European common currency rose to 1.1084 dollars on Thursday.

Oil prices rose slightly on Thursday. A barrel of North Sea Brent rose in price by 35 cents to $35.09. The price for the US variety West Texas Intermediate (WTI) increased by 44 cents to $33.32. Crude oil inventories in the USA rose surprisingly last week. According to the US Department of Energy, stocks increased by 7.9 million to 534.4 million barrels. Analysts, however, had expected an average decrease of 1.9 million barrels. However, the markets hardly reacted to the data. However, the private API had already reported a sharp increase the evening before. The prices were, therefore, not affected by the data.

The gold price was able to recover further after the heavy drop since Tuesday. At the end of the US trading session, the precious yellow metal increased its value by more than 10 US dollars to $1,719. 

Cryptocurrencies continued their bullish moves today as well. Bitcoin posted gains above 4 per cent to $9,500. Ethereum rose even sharper by 5.65 per cent to $219 while XRP gained 1.7 per cent to $0.20.

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Corporate and world news

Economic data releases

USA

There is still no turnaround in sight on the US labour market. Last week, 2.12 million Americans again applied for unemployment benefits. Even though this is not quite as many as in the previous few weeks, the total number is becoming increasingly worrying. Since March 21, about 40 million applications for unemployment assistance have been received.

Furthermore, in the first quarter, the US economy slumped even more sharply than initially reported. As reported by the Department of Commerce in a second data release, gross domestic product (GDP) shrank by 5.0 per cent over the previous quarter, projected for the year as a whole. Economists surveyed by Dow Jones Newswires had expected confirmation of the first report, according to which GDP fell by 4.8 per cent.

Consumption by private households fell by 6.8 per cent while corporate profits dropped by 15.9 per cent. Exports fell by 8.7 per cent and imports by 15.5 per cent. The deflator for personal consumption expenditure (PCE), which is favoured by the US Federal Reserve as a measure of inflation, rose by 1.3 per cent (preliminary: 1.3 per cent) after a rise of 1.4 per cent in the previous quarter.

Germany

The Munich-based Ifo Institute expects the German economy to contract sharply this year due to the corona crisis, but also anticipates strong growth next year. As the institute announced in Munich on Thursday, economic output (GDP) is expected to shrink by 6.6 per cent in 2020. On the other hand, growth expectations for next year have been raised from the previous 8.5 to 10.2 per cent.

National Bank of Poland lowers key interest rate to record low 

he interest rate will be reduced from 0.5 to 0.1 per cent, the currency watchdogs announced in Warsaw on Thursday. This is already the third reduction since the beginning of the coronavirus pandemic. The National Bank also announced that it would buy government bonds on the secondary market. The EU member state Poland has its own national currency, the zloty. 

The government of the national-conservative Law and Justice Party (PiS) had also launched a shield of 100 billion zloty (22.4 billion euros) to support companies and safeguard jobs during the corona crisis. About two-fifths of this amount has already been paid out to more than 200,000 companies, the responsible development fund PFR now announced.

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