The U.S. dollar has been cheaper all last week as the number of people infected in the U.S. has been rising. The new anti-record in America has actually forced many state authorities to abandon plans to restart the economy and tighten social distancing measures. More than 72,000 new infections are a serious argument.
Consumer confidence has already suffered, as evidenced by the University of Michigan consumer sentiment index, which fell from 78.1 to 73.2 (release last Friday). The consensus of the forecast generally provided for the growth of this indicator, which is quite strange given the scale of the epidemic spread in the USA.
The Reuters survey showed that Americans are really concerned about the epidemiological situation in the country. The increase in covid-19 infections this summer and early fall will only increase uncertainty about future employment and income prospects, as well as start restricting consumer spending. Simply put, the population is afraid to spend more than what is necessary for life. This is bad for the economy, as at least inflation will slow down.
With low interest rates, the Fed will have to resort to new incentives.
The primary package of economic stimulus and support to the population has been able to protect the American economy from a deep recession. But the expiration of the stimulus package will weaken the dollar. For example, the government program of additional payments of unemployment benefits will expire on July 31. Consumer spending, which we mentioned above, is under double threat.
Things are not so smooth in the EU either, although a little better than in the USA. At least at first glance. EU leaders are at an impasse over the proposed €750 billion recovery fund to be established on behalf of all participants in the capital markets by the EU Executive Commission.
This should be a historic step towards greater financial integration of the Union, but a group of "thrifty" Nordic states have sought a smaller fund and have tried to limit the distribution of payments between soil and loans to be repaid. According to Bloomberg sources, 250 billion euros in grants were the maximum acceptable for the camp of the "thrifty North", compared to 400 billion, which many others, including Germany and France, consider minimal.
Despite the fact that no consensus is yet expected among EU leaders, many market participants believe that the euro will be supported even if the deal is not reached. But for now, the prospect of a stimulus deal remains.
Returning to the theme of stimulus in the US. At the end of last week in the U.S. Congress the battle for a new Coronavirus Relief Act began. Republicans and Democrats have their own programs. The former insist on $1 trillion in aid, the latter up to 3 trillion. In this scattering, you can see three times the political connotation. We do not forget, because this fall the U.S. presidential elections are due to be held.
As there will be no particularly important economic releases this week, all attention is focused on the political background, the growth of new infections and possible financial incentives in both the U.S. and the EU.
Due to the beginning of the season of reporting on companies' income for the second quarter, gold is also gaining relevance. The first week of the season was quite unpredictable. Most experts predicted that the second quarter of this year will be worse than the first, but, as shown by the U.S. financial sector, this has not happened.
Against this background, although the gold has jumped to historical peaks, the price is not allowed further than 1820. Moreover, good dynamics is observed not only in the USA. Scandinavian banks also surprised positively: DNB, SEB, Swedbank, Handelsbanken surpassed expectations. Trade revenues were a bright spot for them, as well as for American creditors. This segment showed good results in most of Europe.
Investors will keep an eye on the provisions for losses after large sums of money were borrowed in the first quarter.
There is still hope that sectors such as industry were able to benefit from the recovery in June.
At the same time, emerging market central banks continue to cut interest rates in order to support their economies. Hungary, Turkey, Russia, as well as South Africa are expected to lower their base rates this week.
Breakdown of 1820 key level will open the way for gold to grow further. But if the company's earnings reports continue to surprise this week, investors may wake up their appetite for risk. In that case, a part of investors will give preference to stocks, possibly leaving the gold.
"Under current conditions, prices are unlikely to show any appreciable increase in the near future. At least until there is a signal that the pandemic is slowing down. And although the virus is cornered in Europe, America and some Asian countries still have a long way to go," said Bernard Tonhaugen, head of Rystad Energy's oil markets.
More than 14.5 million people worldwide have been infected with the new coronavirus and more than 604,000 have died.
Investors are looking forward to the EU summit on the €750 billion recovery fund, as we have already talked about.
In the morning of Monday morning, oil imports in Japan fell by 14.7% in June compared to the same month a year earlier. The drop was not as severe as in May, when oil imports fell 25% year on year.
Although fuel demand recovered slightly after a 30% drop in April, after countries around the world imposed strict restrictions, demand is still below quarantine. Retail demand for gasoline in the US is falling again as the epidemic grows.
At the same time, tensions between China and the US are rising, which also puts pressure on black gold quotations. On Sunday, the Chinese Embassy in Myanmar accused the U.S. of "outrageously smudging" the country and driving a wedge between its Southeast Asian neighbors in the disputed South China Sea and Hong Kong.
There are more bearish signals in the market today, let's see what the coming week will bring us.