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FXTM: What’s next after the Q2 rally?

Han Tan, Market Analyst at FXTM, comments on markets' latest in light of the developing COVID-19 situation.

Asian equities nudge higher, US futures lower US earnings, Presidential race could push stocks out of sideways trend Gold expected to gradually claim $1800 handle

Risk appetite is stepping hesitantly into the second half of the year, with most Asian stocks edging higher while US futures slipped into the red in early trade. Over the past three months, the S&P 500 posted its best quarterly performance since the final quarter of 1998 soaring almost 20 percent, while the Dow Jones index surged 17.8 percent.

It’s highly unlikely that US equities can beat this performance over the coming months with the rally having recently stalled. Indeed last month, the Dow spent most of its time sandwiched between its 200-day and 100-day simple moving averages, with the 50-day SMA offering support.

Stock markets have priced in most of the optimism surrounding the US economy’s reopening and are in need of fresh catalysts to push higher once more. To be fair to equity bulls, recent economic data appear to justify the stellar climb in stocks over recent months. Yesterday’s  consumer confidence for June, for example,  surpassed market expectations to register its biggest one-month gain since 2011, while this afternoon’s ISM Manufacturing print should show that the sector is moving closer towards returning to expansionary territory. The week concludes with Thursday’s US non-farm payrolls print which is expected to show an increase of over three million jobs following May’s positive blockbuster headline number, while jobless claims and the unemployment rate are set to moderate further.

Yet, scepticism has begun creeping in and investors are now second guessing the amount of upside that remains in stocks over the near-term. The rise in Covid-19 cases in some US states warrants a cautious outlook as they threaten to throw the US economy off its course towards the post-pandemic era.

Perhaps the key events to jolt equities out of their sideways saunter will be the upcoming US earnings season in two weeks, or as the US Presidential race heats up. Until then, developments surrounding the pandemic are expected to continue holding court among global investors.

Read: “Over 200 million at risk of unemployment”: Notable Chinese academic highlights COVID-19 risks

Gold moving upwards, slowly but surely

Gold has taken its own sweet time in making its ascent, defying expectations that the safe haven asset would soar amid the global pandemic. To be sure, spot Gold capped a 17.4 percent gain in the first half of 2020 and is now inching closer to that psychologically important $1800 level. With Gold futures (for August delivery) breaching that mark for the first time since 2011 before moderating, it appears to be just a matter of time before spot prices emulate that feat.

Bullion should continue facing upward pressure due to the persistent concerns among global investors, along with near-zero US interest rates that are set to stick around for longer. Still, in carving out more gains, Gold has to contend with a resilient US Dollar, as well as bouts of risk-on sentiment that are just raring to break through, at the expense of safe haven assets.

Read: Investments from China and Far East Asia to bolster activity in the Middle East