New York Stock Exchange reacts negativelyJul 1, 2020
- EUR/USD 1.1235
- DOW JONES 25’812.88
- USD/CHF 0.9470
- SMI 10‘045.30
- EUR/CHF 1.0635
- CRUDE OIL 39.62
- USD/RUB 71.07
- XAU/USD 1’784.75
The euro has traded within a very narrow range against the dollar, consolidating at 1.1200–1.1400 since the beginning of June. The pandemic continues to spread in the Central and Southern United States. The governor of Texas ordered bars and restaurants, which had recently reopened, to close. The governor of California did the same in Los Angeles and six other counties. The safe-haven dollar has, therefore, strengthened slightly, so the euro is currently trading towards the lower end of the consolidation zone. On the economic front, US GDP figures showed an annualised fall by 5% for the first quarter of 2020, as expected. Weekly unemployment claims are down to 1,480,000 from 1,508,000 last week, although analysts were hoping for 1,335,000. The Fed announced strong measures. It imposed new restrictions on the country’s largest banks, prohibiting 34 institutions from conducting share buyback programmes in the third quarter. It is also ordering them to cap dividend pay-outs. This decision, a first since the Great Recession, comes on the heels of the bank stress tests published Thursday. The New York Stock Exchange reacted negatively to this announcement and the Dow Jones fell by 2.84% on Friday. However, this has not prevented market indices from reaching very high levels, which worries the IMF as it considers that they seem disconnected from reality as they go from one high to another amidst the global recession caused by the pandemic. The institution believes they could be in line for a severe correction. The IMF has warned that the global recession in 2020 will be more severe than previously thought (-4.9% against -3% estimated in April). It also considers there will be a slower-than-expected recovery at the start of the third quarter. This divergence raises the spectre of a new correction, also according to the IMF. Jerome Powell and Thomas Jordan warned yesterday that the global economic recovery will take a long time.
British Prime Minister Boris Johnson has promised a major stimulus package, based on infrastructure construction, to support the hard-hit British economy. This £5-billion plan is for infrastructure projects in the UK. The initiative aims to cushion the economic impact of the pandemic. Britain has been the hardest hit country in the G7 as its GDP dropped by more than 20% in April, and by 2.2% in the worst first quarter since 1979.The economic situation and the deadlock in negotiations with the European Union are keeping the pressure on the pound sterling, which is falling against the euro and the Swiss franc.
Last week, sight deposits with the SNB increased by CHF 2.95 billion, showing that the institution returned to the market after four weeks during which the assets had remained stable. The price of the franc has declined since the highest reached in the heart of the turmoil on May 14 at 1.0505, but the central bank is not lowering its guard as it has repeatedly declared. The franc is returning to the levels it was against the euro at the end of January, before the outbreak of the crisis, which explains why the SNB is being less aggressive.
Canada lost its triple A rating to Fitch, which now assigns it an AA+. The budget deficit for the 2020/2021 fiscal year should reach 12% of GDP against 1% in the previous year. The debt level should be 115% of GDP, even as it already was 88% last year. The other two major rating agencies are expected to follow suit later this year.
The ounce of gold is still moving near its highest dollar price since the last quarter of 2012. The $1,750–$1,770/ounce range posed significant resistance, but the yellow metal, which benefits from a context marked by the uncertainties relating to the evolution of the pandemic and generalised low rates, continues its path towards the $1,796.08 target, the highest achieved in 2012.