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Pound Roars before Sunak ‘Mini Budget’

Chart of the Day: AUS200 (Daily candlesticks)
Source: GKFX / MT4 (July 7, 2020)


Good morning!

•    China bull market continues but with some light profit-taking
•    Snap shares jump as TikTok faces possible US ban
•    Aussie wobbles as Melbourne re-enters 6-week lockdown
•    Gold moving in on $1800 per oz
•    DAY AHEAD: UK ‘mini budget’
 

MARKETS


China markets continued the surge on Tuesday but some end-of-day profit-taking could see a more balanced start on Wednesday. Wall Street finished on a down note as time ran out on a 6-day rally and the Nasdaq pulled back from a third successive record high. European shares ended Tuesday lower with the FTSE 100 leading the losses, shedding 1.5%.

The US dollar was mostly stronger as the mood in markets soured with the notable exception being the British pound. Gold reached new 7-year highs with futures back over $1800 per oz. Oil prices dipped.
 
GURU WISDOM

“Success consists of going from failure to failure without loss of enthusiasm.” – Winston Churchill
 

China Bulls


The CSI300 had its highest close since June 25, 2015. The China blue chip index pulled back from gains of more than 2% as investors booked profits following a rise of over 14% in just six days. It’s natural for any price breakout to pause for breath. Chinese investors must weigh up the apparent government support for a bull market and underlying earnings fundamentals.
 

TikTok & Snap

Shares of Snap, the maker of Snapchat jumped as traders bet on reduced competition from new video-streaming social media app TikTok. On Tuesday Secretary of State Mike Pompeo said the US was considering banning TikTok, which has roots in China. The move would follow the decision last week to ban TikTok and dozens of other Chinese companies in India. It seems improbable that the US would actually ban TikTok unless there was some direct threat to national security.
 

GBP: Mini budget


Grand hopes for the ‘mini budget’ to be announced by UK Chancellor Rishi Sunak tomorrow helped bolster the pound on Tuesday. Sunak could please markets with bold new spending plans or tax cuts but if the measures are purely to preserve jobs, investors might be left disappointed.
 

AUD: Melbourne lockdown


Australia is trying to contain a second wave of the pandemic in Melbourne. Markets had brushed off the higher virus cases but the Aussie pulled back when Melbourne announced a 6-week lockdown to begin midnight Wednesday. Melbourne is the second largest city in Australia with nearly 5 million people and approximately 20% of the Australian population. 

The RBA decision to leave interest rates at a record low of 0.25% as expected offered no surprise and had minimal impact.
 

Gold


The yellow metal pushed higher, with spot prices nearing $1800 per oz. after the Federal Reserve kick-started it’s previously announced ‘main street lending program’ involving direct loans to businesses.

The AUS200 index CFD (modelled on the Australian ASX index) has retraced 61.8% of its February/March decline, while finding support nearthe 50% retracement. If fib levels continue to be respected, the 76.4% retracement could be next upside target.
 

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