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Will S&P500 break a record? (Afternoon analysis 11.08.2020)

11 Aug 2020 18:37|Bartosz Grejner

The market is dominated by positive sentiment, the US S&P500 index rises near the record, bond yields are increasing and the dollar remains practically unchanged. Tuesday is also a day marked by the stabilisation of the zloty.

Such a difference hasn't happened in a month

The afternoon trading on Tuesday, after the start of quotations on US markets, was in a similar mood as the "European" part. Strong increases on European markets also translated into greater demand for the US shares (except for the technology companies index). One hour after the start of the session on the New York Stock Exchange, the main S&P500 index was right next to the historical records.

The high appetite for risk also triggered large movements in the bond market. The sell-off of treasury bonds resulted in strong increases in their profitability, especially those with slightly longer maturities. The difference between the yields of 10- and 2-year US Treasury bonds today exceeded 0.5 percentage points, reaching the highest level in a month. Such a difference most often signals an increase in market expectations of economic activity, and today, these expectations are also reflected in jumps on markets and reports on coronavirus vaccine from Russia.

However, the foreign exchange market remains calm. The dollar continues to move in a narrow fluctuation range: the main currency pair, i.e. the EUR/USD, oscillates around 1.18 in the afternoon just below the 1.18 boundary, about 0.3% above yesterday's closing level.

What is from Hong Kong, is "Made in China"

Reports on the geopolitical tension may stop the dollar from being further depreciated. This is not the most important factor for the market at the moment, but the worsening relationship between the US and China may gain in importance after the summer. Unfortunately, there is little indication that the superpowers will be able to settle the disputes by then. The US President Donald Trump, quoted by Bloomberg, stated that he had not spoken to China's President Xi Jinping for a long time and that relations with China had changed when the pandemic came.

The US will now mark all goods manufactured in Hong Kong as "Made in China". This announcement extends a series of steps that make it difficult to improve cooperation, especially trade negotiations (and reaching a second phase agreement) that are to continue this week.

The zloty remains in good condition

The situation of the zloty stays the same. The EUR/PLN quotations continue to move around 4.40 and the USD/PLN pair is in the narrow range of about 3.73-3.74 in the afternoon. The market situation both internal and external supports the zloty, and the optimism related to information about the coronavirus vaccine is also a positive stimulus.

The demand for emerging countries' currencies, including the zloty, may increase even more when a vaccine for COVID-19 becomes officially effective and available on the market.

11 Aug 2020 18:37|Bartosz Grejner

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

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Dollar goes up slightly (Daily analysis 10.08.2020)

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