Europe Points Higher Ahead of Busy Data Day, Gold Shines
Fiona Cincotta August 5, 2020 7:29 AM
Slowing new coronavirus cases in the US, vaccine optimism from Novavax and a meeting between Chinese and US trade negotiators to asses progress in the Phase 1 trade deal are all helping to boost the mood ahead of a busy day of data.
After an upbeat close on Wall Street, European markets are pointing to a stronger start. A combination of slowing new coronavirus cases in the US, vaccine optimism from Novavax and a meeting between Chinese and US trade negotiators to asses progress in the Phase 1 trade deal are all helping to boost the mood ahead of a busy day of data.
The closely watched UK service sector Purchasing Managers Index will be in focus in the European session. Analysts are expecting the PMI to confirm 56.6, whereby the level 50 separates expansion from contraction, as the sector continues to rebound from its April nadir. The service sector is the sector which was most affected by the lockdown measures and is also the dominant sector in the UK economy. A strong reading could help lift sentiment and push GBP/USD back above $1.31 as the UK economic recovery gains momentum. However, this is set to change as the government starts to withdraw support from the job retention scheme over the coming months.
In the US session the ADP payroll and ISM non-manufacturing could guide investors with what to expect on Friday’s non-farm payroll. Both the ADP payroll and the non-manufacturing PMI are expected to show a slowdown from last month’s solid numbers. Too much of a slow down could unnerve investors amid fears that the resurgence in covid cases is hampering the economic recovery.
Gold is on fire. The precious metal’s scorching rally has continued with prices pushing through the key psychological level $2000 to a record high of $2030 per ounce, as bond yields hit new lows and the US Dollar experiences another steep sell off.
With Congress promising to work round the clock to reach a deal on a new rescue package by the end of the week and comments from the President of the Federal Reserve Bank of San Francisco that the US economy will need more support than initially thought– the stimulus taps are firmly switched on with no signs of them being turned off anytime soon.
With the global economic recovery expected to be more drawn out than initially expected and the US Dollar losing value, investors are increasingly turning to non-yielding gold to store wealth. Given that high fiscal spending and extremely accommodative monetary policy are expected to be in place for years, there is a good chance that gold has higher to go.
Whilst the commodity Gold is an obvious way to tap into the gold rally, Gold miners have also been experiencing a boom of late.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.