By Han Tan, Market Analyst at FXTM
Investors have been reluctant so far to send benchmark stock indices to new record highs since the Covid-19 pandemic, despite coming tantalisingly close. Asian stocks are mixed, with regional indices pulling the MSCI Asia Pacific index further away from its January 20 close, despite Thursday coming within less than four points of that record.
However, the S&P 500 could have another shot at posting its highest ever close on Friday with US stock futures in the green in early trading. It could all come down to the July US retail sales data release later in the day.
Considering that the figures from May and June beat market consensus, a third consecutive positive surprise might just get the S&P 500 over the line in setting a new high. Given the US economy’s reliance on domestic consumption, retail sales must demonstrate a sustainable recovery in order to spur risk sentiment onto greater heights and further embolden equity bulls.
US economic data have been surprising to the upside of late, the most recent example being Thursday’s weekly jobless claims which fell below the 1 million mark for the first time since March. Still, looking at the broader picture, these jobless figures remain elevated compared to pre-pandemic levels, which necessitates additional economic support from policymakers.
The positive data could prove fleeting if major countries cannot get a firm grip on the pandemic or if policymakers pull back on their respective support measures too soon, while noting that the road ahead still holds downside risks for the world economy.
Chinese economy still finding its footing
China’s economy continues to take strides into the post-pandemic era, even if some soft spots remain.
July’s industrial production grew 4.8% year-on-year matching June’s expansion rate, while retail sales disappointed markets as they contracted by 1.1% compared to the same month last year. Property investments last month posted a better-than-expected reading of 3.4% year-on-year.
As China continues to lead the way past the pandemic, this bolsters hopes that the global recovery can stay the course and justify the stellar gains in stock markets since March.
US-China talks, US stimulus in focus
Investors will also be on the lookout for how the US-China trade talks unfold over the coming days, as both economic powerhouses check in with each other regarding their phase-one trade deal. At the same time, markets will be keeping an eye on whether the stalemate surrounding the next round of US fiscal stimulus can be broken, even though the better-than-expected readings on the US economy could buy Congress more time.
Still, should either of these events take a negative turn, traders may upend attempts to register new record equity highs, while paving the way for Gold to rebound back above the $2000 mark.
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