Weekly Market Outlook: Earnings and EU data take centre stage

July 20, 2020 11:30

In a light week of economic data, all eyes will be on the progress of the weekend's recovery fund talks by European Union leaders. The proposed 750 billion EUR recovery plan is still being negotiated. While France and Germany support the plan, there is still disagreement among the 27 leaders, making it a key risk event for the week ahead.

That is at least until Friday, in which a large number of economic data points are being released for France, Germany and the UK. This includes Flash Services and Manufacturing PMI data. Last month's releases came in better than expected for both France and Germany with the UK posting worse than expected results.

Due to the historic stimulus measures from central banks around the world and the easing of lockdown restrictions, economists are forecasting a rise in both the Manufacturing and Services PMI data in all three countries, leading to the possibility of significant volatility in the euro and British pound.

Last week, most major stock indices struggled to break through their most recent June highs. However, earnings season kicks into high gear this week with some major heavyweights reporting such as IBM, Coca-Cola, Snap, LVMH, Unilever, Tesla, Intel, AT&T and Microsoft among others. You can view the calendar breakdown further down.

Source: Forex Calendar from the MetaTrader 5 trading platform provided by Admiral Markets UK Ltd.

Key economic reports and markets to watch

UK Retail Sales Friday 24 July

On Friday 24 July, economists expect UK Retail Sales month on month to rise to 11.8%. Last month's figures came in at 10.2% so the expected rise higher is not huge by any standards. However, with UK lockdown restrictions eased, traders will be keen to see if business is starting to pick up again.

The lines above show data for past announcements with the blue line showing actual figures and the green line showing forecasted figures. While the British pound was already selling off in the run-up to last month's highly expected negative figures, the currency pair has remained range based in the last week, along with the majority of other US dollar paired currency pairs.

On Friday, the UK also releases Services and Manufacturing PMI data which is expected to remain relatively unchanged. Traders may look for clues in these three data points for the future price direction of the British pound, at least up until Brexit negotiation talks start to become critical in September.

Source: Admiral Markets MetaTrader 5, GBPUSD, Daily - Data range: from 20 Feb 2019 to 19 July 2020. Please note: Past performance is not a reliable indicator of future results. Last five year performance: 2019 = +3.95%, 2018 = -5.54%, 2017 = +9.43%, 2016 = -16.26%, 2015 = -5.38%, 2014 = -5.97%.

In the daily price chart of British pound vs the US dollar (GBPUSD) shown above, it's clear to see the recent larger trading range that has developed between April and July 2020, as well as the small range that has developed in the past week. Price is struggling to break through the 200-period exponential moving average (green line) and the horizontal resistance level around 1.2650 (black line). Traders will look for clues for future price direction on whether the bulls or bears can take control of the market at these critical levels.

Gold and the all-time high level

Even though global stock markets have rallied higher in recent months, safe-haven assets like gold have also remained in demand. The price of gold against the US dollar (Gold vs US dollar) is now roughly 6% away from its all-time high price level of around $1,920.

Fears among investors regarding a second wave and the slow reopening of businesses from the lockdown, as well as bloated government balance sheets and rock bottom interest rates, have all kept gold attractive as a hedge to an economic recovery as it pays no interest to hold it, unlike some bonds which have negative yields.

Gold is already trading at record highs against the British pound, euro and Japanese yen. While it's not too far away from its all-time high against the US dollar, any significant move may be triggered from developments in the US dollar in the Federal Reserve FOMC meeting next week.

Source: Admiral Markets MetaTrader 5, GOLD, Monthly - Data range: from 1 January 1992 to 19 July 2020. Please note: Past performance is not a reliable indicator of future results.

In the monthly price chart of Gold vs the US dollar above, it's clear to see the long-term uptrend and the potential for the market to trade back to its all-time high price level. Traders may also watch other precious metals such as silver and platinum which are exhibiting signs of strength as well and are also tradable CFDs (Contracts for Difference) with Admiral Markets UK Ltd.

Corporate trading updates and stock indices

Global stock indices printed another impressive week, although failing to break through their most recent June highs. Optimism around a potential coronavirus vaccine has seemed to wane and is now most likely priced into the rally we've already seen these past few months. The clues for investors are now coming from second-quarter earnings releases where the market is not expecting much. However, there could always be potential surprises so risk management is key when trading through earnings season.

Here are just a few companies reporting this week:

Monday 20 July - Philips, IBM, Halliburton
Tuesday 21 July - UBS Group, Lockheed Martin, Philip Morris, Coca-Cola, Snap
Wednesday 22 July - Metro Bank, LVMH, Tesla
Thursday 23 July - Unilever, Roche, Daimler, American Airlines, Intel, AT&T, Twitter, Microsoft
Friday 24 July - Schlumberger, Verizon

The German DAX 30 stock index is not too far away from its all-time high price level of roughly 14,000, as the chart below shows. Any further gains may depend on the future price direction of the euro and this week's European data points which the European Central Bank are actively looking at, as well as the status of the coronavirus recovery fund.

Source: Admiral Markets MetaTrader 5, DAX30, Daily - Data range: from 8 Feb 2019 to 19 July 2020. Please note: Past performance is not a reliable indicator of future results. Last five-year performance: 2019 = +24.05%, 2018 = -17.74%, 2017 = +12.38%, 2016 = +6.94%, 2015 = +9.34%, 2014 = +1.96%).

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