US stocks kicked off the week on a positive note, even though the sentiment in European markets remained fragile. The GOP’s 1 trillion-dollar new fiscal stimulus plan helped boosting sentiment in the New York trading session. The Federal Reserve (Fed) doves also tilt the balance to the positive side, as US policymakers are expected to maintain an ultra-dovish policy stance at this week’s meeting amid the persistent rise in new Covid-19 cases over the past weeks. And of course, the significant depreciation in the US dollar is likely fueling demand in cheapened US stocks.
Technology stocks led gains on Monday before earnings announcements due to follow from big names such as Apple, Alphabet and Facebook this week. It is worth noting that downside risks prevail as the tech earnings could have been hit by a sharp drop in advertisement revenues in the second quarter.
Elsewhere, the company earnings remain completely decoupled with the actual market pricing. Australian companies, for example, are heading into the worst earnings season in history, as businesses have been heavily impacted by the Covid shutdown, and the second wave has already forced 5 million people to an additional 6-week lockdown. The Australian dollar however extended gains past the 0.7140 mark on the back of a broadly weaker US dollar. Solid recovery in iron ore prices, on the other hand, is certainly a positive push for the Aussie despite the critical Covid situation. Hence, for Aussie traders, the trend and momentum indicators point at a further advance towards the 200-week moving average that presently stands at 0.7256.
Asian markets traded flat to positive on Tuesday, as activity on European futures hint at a positive start after the major indices ended the Monday session in the red.
It is hard to predict the short-term market direction in such choppy conditions. Hope for more monetary and fiscal stimulus keep investors on track for buying equities, however, the company fundamentals and the economic situation don’t improve at the desired speed. This means that the country and company debts are exploding without a concrete positive impact on businesses and economies. And as we move forward, the margin for more stimulus tightens. When and how this would impact the market sentiment is yet to be seen.
