A Gold and Tech Rally

Covid-19 Cases and Vaccine Optimism

The virus continues to spread across the world, with more than 17 million confirmed cases of coronavirus and 670, 000 deaths. Many countries have seen a surge in the number of infections over the months. As the month comes to an end, we note that countries that have initially successfully controlled the outbreak are now experiencing a rise of cases again. Pfizer, BioNTech, Moderna and AstraZeneca have all issued positive vaccine updates that have increased expectations of a potential vaccine in early 2021. The US remains among the worst-hit countries, but now Europe is under the radar over fears of a second rise in cases.

As virus cases continue to surge, investors fret of a deeper recession. Earlier this week, the preliminary GDP figures show that the US is poised to shrink by a 32.9% – the deepest decline in decades. The pandemic continues to wreak havoc across the globe and the outlook for the third quarter remains murky.

Gold Rally

Gold has been on an unstoppable rally recently as investors are hedging with safe-haven assets given the ongoing uncertainty and geopolitical tensions. The fears of a second wave and the prospects of rolling back reopening measures are overshadowing the recovery outlook. The path of the global economy remains dependent on the course of the virus. Towards the end of the month, the uncertainty around the US next stimulus package has also pushed the precious metal higher. The XAUUSD pair broke the record high seen during September 2011 and rose to an all-time intraday high at $1,981.

Source: Bloomberg

Towards the end of the month, the precious retreated from recent highs and suffered its first loss in ten sessions dragged by positive vaccine updates and a tech rally. As of writing, the pair is currently trading at around $1,967.

Source: Bloomberg

Where is the next target level? In the face of uncertainties, gold is gaining momentum due to a number of factors ranging from the global economic crisis, US election, stimulus packages, continued spread of the virus, geopolitical tensions between US and China, and a fragile rally in the stock market among others. Many big banks struggle to agree on the next level after the gold broke the $2,000 mark. The pace of the rally have moderated and gold may be subjected for a correction but the fundamentals remain bullish.

Source: Bloomberg

Earnings Season – Tech Rally

After a busy month on the earnings front, mega-cap tech-related firms like Alphabet, Amazon, Apple and Facebook stood out as they reported strong earnings report showing the resilience of the big tech companies.

• Alphabet: The Company reported a total revenue of $38.3B, which were driven by the gradual improvement in their ads business and strong growth in Google Cloud and other revenues.
• Apple: The Company posted quarterly revenue of $59.7 billion, an increase of 11 percent from the year-ago quarter, and quarterly earnings per diluted share of $2.58, up 18 percent. The Company reported double-digit growth in both Products and Services and growth in each of our geographic segments.
• Facebook: The company’s revenue grew by 11% in the second quarter and came in above expectations at $18.7 billion. The company reported a profit of $1.80 per share, which was ahead of expectations. The Company also reported a strong engagement of Facebook’s DAUs and MAUs during the pandemic.
• Amazon: The Company reported a strong earnings beat. net income increased to $5.2 billion in the second quarter, or $10.30 per diluted share, compared with net income of $2.6 billion, or $5.22 per diluted share, in second quarter 2019.

 Apple, Amazon and Alphabet reported their quarterly updates after the market close and triggered a tech rally in after-hours trading despite the risk-off sentiment in the global stock market.

Source: Bloomberg

Mark Zuckerberg stated that the tech industry is an “American Success Story”. Earlier this month, the combined value of four of the big tech giants exceeded Japan’s entire equity market.

Source: Bloomberg

US and European Stocks

For the month to date, US stocks are performing better than its European counterparts. On the reassurance that the intervention measures are not going to fizzle out anytime soon, investors have pushed global stocks higher. European bourses found support on the historic move made by the EU leaders on the agreement of the Recovery Package and European Budget and its initially successful containment of the virus.

The delay in the proposing the next round of stimulus package and the hesitation and concerns with proposed $1 trillion plan unveiled by the Senate Republicans this week are weighing on risk sentiment. As of writing, the new clusters of the virus in certain European countries are also weighing on European bourses which were rebounding quite well until recently.

Source: Bloomberg

A Struggling US Dollar

The US dollar traded on the back foot as the safe-haven struggled to find support despite the current market and geopolitical jitters. The greenback faced the brunt of the mounting number of cases raging in the US in comparison with other major economies.

The US dollar Index which measures the performance of the greenback against a basket of currencies fell from the 97 mark at the beginning of the month to a low of 92.50 as the month comes to an end. Earlier this month, Deutsche Bank USD Trade Weighted Index showed that the US dollar broke the nearly decade-long uptrend.

Source: Bloomberg

On the other side, the Euro benefitted from the unprecedented recovery package deal and budget agreed by the EU leaders to support their economy and the easing lockdown measures in European countries. Also, among major developed countries, daily activity gauges show that EU countries were recovering better post-coronavirus and were ahead of the US, UK and Canada.

Source: Bloomberg

The EURUSD pair rallied to a high of 1.19 – the highest level seen since 2018.

Source: Bloomberg