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Daily wrap up 30 June 2021

30 Jun 2021 05:45 PM

Traders are a little worried about the increasing number of Covid-19 cases, the delta variant of the coronavirus is spreading at a relatively fast rate, hence the weakness in European stocks. US indices started off lower but now they are now in positive territory. In recent months, governments in the West have rolled out impressive vaccination schemes, which brought about the easing of restrictions, the rebounding of economies and strong rallies in stocks. The fear surrounding the delta variant is nothing like what we experienced in Autumn 2020, but it has prompted some market participants to curtail their exposure to equities.

The slightly renewed fears in relation to the coronavirus comes at a time when there are some signs that countries economic recoveries are cooling. Overnight, China’s manufacturing and non-manufacturing PMI’s reports were 50.9 and 53.5 respectively, both updates were three-month lows. This morning, the UK’s first quarter GDP reading was revised from -1.5% to -1.6%. The eurozone CPI rate cooled from 2% to 1.9% in June. In the US, the Chicago PMI reading came in at 66.1, a sharp fall from the 75.2 registered in May. These reports all point to a waning in activity. Not all the data was a little on the disappointing side, the US ADP employment report showed that 692,000 jobs were added last month, which smashed the 555,000 forecasts that economists had predicted. The finer details showed that 624,000 jobs were created in the services sector – one of the hardest hit in the pandemic. It is encouraging to see the labour market is bouncing back but considering that employers are often cautious about taking on new staff, it could be a lagging indicator. Nonetheless, the news will get traders in the mindset for Friday’s non-farm payrolls.

The ADP reading propelled the US dollar higher, and it is not too far away from the high recorded in mid-June – two days after the Fed meeting. It appears that traders are taking the view the US economy is still enjoying a solid recovery, and that explains the rally in the dollar. It is no surprise that AUD/USD, GBP/USD and EUR/USD are suffering as a result. Gold has a jump in volatility as the ADP numbers were posted but it has managed to push to a two-day high, despite the firmer dollar. The positive move in gold might be down to safe-haven investing. The metal is on track for its largest monthly loss since 2016, so end-of-the-month rebalancing might be factor too. Oil is higher today, US oil stockpiles dropped by 6.7 million barrels, exceeding the -4.2 million barrels that analysts’ had forecasted.

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