US markets rallied Monday after the decision from China’s central bank to introduce new stimulus measures. Investors considered the more accommodative monetary policy stance from China’s government, while keeping track of the continued virus risk in the US.
Earlier, the People’s Bank of China injected 700 billion yuan ($101 billion) of extra liquidity into the financial system of the country, showing the government is switching to more accommodative measures. Some speculate that the injection that took place through China’s medium-term lending facility could be a prelude to cuts in interest rates and other easing measures.
The S&P 500 rally so far failed to break the peak posted in February, as buying interest was capped just under the peak. The market made another unsuccessful attempt at breaking above the peak last week which saw mixed close across markets after buying impetus was tempered by the softer retail sales data.
The lack of fiscal stimulus took the wind from the sails of the markets as investors continued to weigh how this could affect the speed of US recovery. Economists warned that a stimulus deadlock may plunge the economy into a longer-than-expected recession, yet US Senators went on a recess Friday, leaving stimulus talks for September, unless a majority of them decides to reconvene earlier.
Across the Boards
Barrick Gold went up more than 10% in Monday pre-trading, after a SEC filing revealed Berkshire Hathaway, Warren Buffett’s investment fund, bought a significant stake during the second quarter. Bershire Hathaway bought 21 million shares of the gold and copper mining company worth $564 million, despite Warren Buffett being on record saying that gold is not that good investment compared to businesses, farms and real estates.
Gold rose on Monday, consolidating gains around $1,950, as investors await the release of the FED minutes on Wednesday to have a better grasp of the strategy to stem the economic downturn, before deciding whether to continue to buy the commodity. Starting the trading day on the red, gold managed to recoup most of its 4.5% decline last week, buoyed by the weak dollar.
Oil price fell Monday, with West Texas Intermediate (WTI) and Brent crude posting between 0.5% and 0.7% decline, mainly due to the rising cases of COVID-19 in Europe. Italy, France and Spain warned of rising virus indicators, raising doubts about the speed of recovery and respectively, the demand for oil.
In currencies, Sterling edged up against the dollar and euro, ahead of the resumption of the EU exit talks on Tuesday, with the focus in this round of talks being London’s financial sector access to the single market after Brexit. Cable rose on the back of the weaker US dollar but remained capped above the 0.9 handle against the euro.