Markets continue to push higher against all odds following the current uptrend. Strong buying into riskier assets like Energy, Financials, Industrials and Real Estate sectors continued in the US overnight. Things like Health Care and Staples continue to lag behind. Markets have had a strong few weeks with the SP500 and XJO up around 11%. We saw sectors like Energy, Financials, Industrials and Real Estate sectors push markets higher showing a strong signal that people are becoming more comfortable in coming back to riskier assets.
At this stage markets remain strong against uncertainty creeping in, in already uncertain times. US and China are at it again as we expect an announcement of retaliation on China’s new national security law on Hong Kong.
Despite the uncertain times, markets are seeing the light at the end of the tunnel. Markets are being held up at current levels with;
- Economies are on a reopening path
- Hopes of a vaccine
- Low interest rates with the view they are going lower
- Bond buying, to keep the Credit markets ticking along
- Increased unemployment benefits and programs to help keep staff employed that would have lost their jobs otherwise
- Hints of further stimulus on the way.
Earnings sentiment is still exceptionally low, with many analysts downgrading expectations. If sentiment continues to increase around lockdown relief, we could see a shift here later in the year. But for now, things are expected to be negative through the July – August reporting seasons. Future prediction on growth at this stage seems to be weak through the rest of this year and most of next, where it is expected to jump strongly.
With negative leads from the U.S overnight, our market is set to open lower. The U.S futures have dipped into the green for now, which should help keep bullish pressure in our session today, provided they stay there or push higher.
With Trump’s response due tomorrow (at some point – probably after-market) we may see a bit of cautious selling today and in their session tonight. The question is whether the return to tit-for-tat policy with China will be enough to cause market tumbles despite all the stimulus. The momentum is still to the upside, but the escalation may see investors decide to take profits and take some risk off the table.
Overnight we saw China sign into law the contentious Hong Kong security legislation, with Trump promising to announce the US response in a news conference at some point today. The geopolitical tensions likely helped markets come down from their highs overnight, with the S&P500 closing around one percent below its intra-day highs. Additionally, Trump is preparing to sign an executive order that could remove certain legal protections for social media platforms, after having a row with Twitter, which also didn’t help sentiment. Sectors were a bit mixed overnight, with basic materials, healthcare, and utilities stocks closing higher, whilst financials, telecoms, technology, and oil and gas stocks closed lower.