Weekly Market Outlook: RBA, China and stocks in focus
In the last week before the US earnings season gets underway, the focus turns to key economic data events which include the Reserve Bank of Australia (RBA) interest rate decision, Canadian PMIs, Chinese Inflation and Eurogroup meetings, as well as corporate data from some major UK and US companies.
The global rebound in economic data, 'whatever it takes' stimulus plans from central banks and optimism around a potential vaccine for Covid-19 have kept commodity currencies and global stock indices in a buoyant mood with the Nasdaq 100 stock market index trading at all-time highs and the China A50 stock market index only around 4% away from its all-time high.
However, nervousness around a potential second wave of coronavirus infections, the reversal of businesses reopening due to this, as well as rising US-China tensions and deadlocked Brexit talks have kept safe-haven markets such as gold in demand.
Economic reports to watch
RBA Interest Rate Decision Tuesday 7 July
The Australian dollar has been one of the best-performing currencies of the last quarter, with the currency rising nearly 30% against the US dollar from the middle of March to mid-June. However, the currency has started the month with low volatility, with many AUD-cross rates in technical ranges.
It's unlikely the RBA will announce any changes to its policy in Tuesday's 7 July interest rate decision but investors will be on alert for any 'dovish' remarks on the back of the recent spike in coronavirus cases in Australia. Some traders may well be looking for the AUD/USD to retest the long-term, monthly trend line which was broken last month.
Source: Admiral Markets MetaTrader 5, AUDUSD, Monthly - Data range: from 1 January 2006 to 5 July 2020. Please note: Past performance is not a reliable indicator of future results.
China Inflation Thursday 9 July
Investors will be watching Chinese inflation numbers closely to further support action from the People's Bank of China (PBOC) bank. Last week, the central bank slashed its relending and rediscount rate by 25 basis points, helping to lift the China A50 stock index to a two-year high with price only around 4% away from its all-time high price level.
Source: Admiral Markets MetaTrader 5, #China50_N0, Monthly - Data range: from 1 June 2012 to 5 July 2020. Please note: Past performance is not a reliable indicator of future results.
Eurogroup Meeting Thursday 9 July
On Thursday, the European Union will put forth an updated proposal on the coronavirus recovery fund to help find a compromise between European nations who want to give out aid to economies that have been devastated by the impact of Covid-19 without repayment and those who prefer to give out loans which require repayment.
The euro against the US dollar (EURUSD) exchange rate has been mixed in recent months as both central banks keep rates low and have embarked on major stimulus plans. However, the currency pair has key, long-term monthly price levels that could come into action on any significant movements.
Source: Admiral Markets MetaTrader 5, EURUSD, Monthly - Data range: from 1 October 2004 to 5 July 2020. Please note: Past performance is not a reliable indicator of future results.
Corporate trading updates and stock indices
Global stock markets have remained in a buoyant mood since the stimulus actions taken from central banks in mid-March. While the Nasdaq 100 index, which represents a large variety of technology-based companies, trades at all-time high price levels, other stock indices remain well below.
However, European stock indices rose throughout last week on encouraging news of a potential coronavirus vaccine and improving economic data such as the German retail sales number which jumped to 13.9% in May against an expected 2.8%. European Central Bank (ECB) President Christine Lagarde also commented that the worst of the slump might be passed but that trade is unlikely to return quickly causing lower productivity.
The DAX 30 index has so far been supported by a long-term trend line that started from the middle of March. However, the price has struggled to break through resistance just below the 13,000 level. Both levels will be key areas for traders in the coming week.
Source: Admiral Markets MetaTrader 5, DAX30, Daily - Data range: from 21 October 2019 to 5 July 2020. Please note: Past performance is not a reliable indicator of future results. Last 5-year performance: 2019 = +24.05%, 2018 = -17.74%, 2017 = +12.38%, 2016 = +6.94%, 2015 = +9.34%, 2014 = +1.96%).
While US earnings season gets underway next week, there are still a few earnings and trading update announcements due this week.
UK housebuilders Barrat Developments and Persimmon will be closely watched by investors. While Brexit talks are deadlocked, the UK government's recent 'build, build, build' pledge to get the economy moving again may benefit housebuilders as the government looks to loosen planning regulations. In the United States (US), all eyes will be on Delta Airlines' trading update which may give some insight on how fast the consumer recovery is, amid the backdrop of rising coronavirus cases.
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