“European stocks in reverse as U.S.-China tensions spike…”

European shares slid on Wednesday as escalating U.S.-China tensions as well as a surge in coronavirus cases dented sentiment after an EU-wide debt deal sent the region’s markets to four-month highs in the previous session. Beijing said Washington had abruptly told it to close its consulate in the city of Houston, an advance strongly condemned by China. In response, the Asian country is considering closing the U.S. consulate in Wuhan, a source said. Energy stocks .SXEP took the biggest hit, down 2.8% after data showed a bigger-than-expected inventory build-up in the United States, adding to the pressure on oil prices. Royal Dutch Shell (RDSa.L), BP (BP.L) and Total SA (TOTF.PA) dropped more than 3%. Healthcare stocks .SXDP marked their worst session in a month, while China-sensitive basic material stocks .SXPP lost 1.4%. Expectations for second-quarter corporate profits in Europe have further deteriorated, Refinitiv data shows, as fears grow over the extent of the recession triggered by the pandemic.

UK committed to agreeing outlines of trade deal with EU

Britain remains firm on agreeing to the outlines of a balanced trade agreement with the European Union but significant differences between the two sides remain, a spokesman for Prime Minister Boris Johnson said on Wednesday. Talks on a so-called future relationship, which are now in their fifth round, have all but stalled, raising fears among some companies that there will be disruption at the end of the year if the two fail to secure a trade deal.

 “We remain committed to working hard to find the outlines of a balanced agreement,” the spokesman told reporters.

 “We have been clear that discussions throughout this intensified process have continued to be constructive but significant differences still remain on a number of important issues.

 “Our preference is to leave with a Free Trade Agreement as long as it guarantees our political and economic independence … We will make sure that we’re prepared for all possible scenarios.”

Gold surges 1.5% as dollar stumbles; silver gathers pace

Gold soared to a nine-year peak on Tuesday, boosted by a dollar sell-off and expectations for increased stimulus to aid the recovery of pandemic-hit economies, while silver dashed past the $20 threshold to an over six-year high. Spot gold rose 1.5% to $1,842.52 per ounce. It hit its highest since September 2011 and was track to post its biggest daily gain since early May. U.S. gold futures settled up 1.5% at $1,843.9. “The U.S. dollar has dropped as the world is looking a little bit better,” said Bart Melek, head of commodity strategies at TD Securities. “Interest rates have fallen across the yield curve and that again is another factor helping gold,” The U.S. dollar, viewed as safe-haven rival to bullion, hit more than a four-month low. U.S congressional leaders are set to discuss a fresh stimulus package this week, and European Union leaders clinched a “historic” deal on a massive stimulus plan on Tuesday morning. In other metals, silver soared 6.4% to $21.18 per ounce, after hitting its highest since July 2014 at $21.20. Palladium climbed 5% to $2,156.71 per ounce, after hitting a peak since April 21. Platinum jumped 5.2% to $886.97 per ounce, after rising to its highest since March 10.

U.S. – Oil price slip U.S, rise in crude inventories

Oil prices edged lower on Wednesday as government data showed a surprise rise in U.S. crude inventories and as tensions escalated between the United States and China. Brent crude futures settled down 3 cents at $44.29 a barrel, while U.S. West Texas Intermediate crude settled down 2 cents at $41.90 a barrel. U.S. crude and distillate inventories rose unexpectedly, and fuel demand slipped in the most recent week, the Energy Information Administration said on Wednesday, as the sharp outbreak in coronavirus cases has started to hit U.S. consumption. Crude inventories rose by 4.9 million barrels in the week to July 17 to 536.6 million barrels, compared with expectations in a Reuters poll for a 2.1 million-barrel drop. Production rose to 11.1 million barrels per day, up by 100,000 barrels per day. A fresh dispute between Washington and Beijing put pressure on prices after the United States told the Chinese consulate in Houston to shut and a source said China was considering closing the U.S. consulate in Wuhan. Adding to pressure were signs that Iraq, the second-largest producer in the Organization of the Petroleum Exporting Countries, was still not meeting its target under an OPEC-led pact to cut supplies.

Investors rush into gold

Investors are piling into haven assets such as gold, the Swiss franc and cash as U.S. stocks approach all-time highs, looking to hedge big moves in equities amid economic uncertainty and a resurgent coronavirus pandemic. Prices for gold are up 22% this year and stand near record levels, as the metal draws investors seeking shelter from a potential reversal in stocks. The Swiss franc is among the year’s best performing currencies and allocations to cash remain historically elevated. While sitting on the side-lines has proven a disastrous strategy as stocks rallied, many have become unsettled by stretched equity valuations and a coronavirus resurgence that has all but extinguished hopes of a quick U.S. economic recovery. The S&P recently traded at 3,268, less than 5% shy of its Feb. 24 record high.

 “The easy trade isn’t putting money in equities anymore,” said Jim Besaw, chief investment officer at GenTrust. “The market might have gotten a little bit ahead of itself.”

Other factors have also driven the moves in havens. Gold, which normally struggles to compete with yield-bearing assets, has become more attractive to investors after the Federal Reserve cut rates to historic lows. Gold has also drawn investors worried that unprecedented levels of stimulus could cause inflation to rise. Investors have also piled into inflation-protected bonds as a hedge. Some believe caution amid a big stock rally is a sign that investors haven’t become overly ebullient despite the recent gains, and may sell their haven assets to buy equities if prices become more attractive. Worries over valuations were a regular feature of the last bull market, which saw the S&P gain around 400%.

Market Roundup

Concerns over the pandemic are returning to the fore, especially over the U.S., where the virus has now infected more than 3.8 million people, according to data from Johns Hopkins University, and has killed almost 142,000 people. European stocks had advanced Tuesday after European Union leaders reached a deal on a 750 billion euro ($862 billion) recovery fund to help the region recover from the coronavirus crisis. In terms of individual share price action, Norwegian media group Schibsted climbed 15% after its spin-off Adevinta bought eBay’s classifieds unit for $9.2 billion on Tuesday. At the bottom of the European blue chip index, Melrose dropped 19% after the British business transformation company posted second-quarter losses and warned of job cuts as sales plunged. Concerns over the pandemic returned to the fore, especially in the U.S., where the virus has now infected more than 3.8 million people, according to data from Johns Hopkins University, and has killed almost 142,000 people. The U.S. reported more than 1,000 deaths from Covid-19 on Tuesday, according to a Reuters tally, marking the first time since June 10 that the country had reached that grim milestone. All followed by a steady decline in the dollar in recent weeks. The buck is down 8% from its highs of the year against a basket of currencies =USD and stands near its lowest level since 2018. Net bets against the dollar in futures markets are approaching their highest level in more than two years.

 “Investors don’t know what the U.S. is doing” regarding the coronavirus pandemic, said Richard Benson, co-chief investment officer at Millennium Global Investments in London. “That has been a big drag on the U.S. dollar.”

Euro nears 2-year high

The euro strengthened to its highest in nearly two years against the dollar, while commodity currencies gained as risk-on moves continue in the wake of a fiscal stimulus deal reached by European Union leaders on Tuesday. Following the EU’s agreement on a 750 billion-euro recovery fund to share the debts incurred during the coronavirus crisis, with the euro up for a fourth straight day against the greenback. In afternoon trading, the euro was last up 0.37% at $1.1569 EUR=EBS, after hitting $1.1601, the highest since October 2018. After gaining on the U.S.-China headlines, the dollar index resumed falling and was down 0.2% at 94.939 =USD. The index fell to a low of 94.827, its weakest since March. The Australian dollar was up 0.2% at US$0.71425 AUD=D3 after earlier hitting a fresh 15-month high, while the New Zealand dollar was up 0.3% at US$0.6664 NZD=D3, touching a six-month peak earlier in the session.

EU budget and European recovery plan welcomed by Malta Business Bureau

In its first reaction, the MBB welcomed the European Council agreement announced yesterday (21 July) on the European recovery plan as well as on its long-term budget. The last summit showed how complex it is to put together an ambitious financial framework that addresses the long-term European objectives, while accepting the different member states’ political priorities. Discussions on the original EU budget proposal had been ongoing since 2018, so it was commendable for EU leaders to step up and ensure a swift agreement on the revised proposal, considering the extraordinary circumstances we are living in, and to make a historic deal. Being a very extensive deal, the Malta Business Bureau will be assessing in more detail in the coming days to look out for opportunities for Maltese companies.

Timberland Invest Ltd Research & Marketing Department


Reuters, CNBC, The Malta Business Weekly


July 24th, 2020

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