Equities benefit from market optimism – Market Analysis

Equities benefit from market optimism – Market Analysis

PBOC joins the “liquidity injection” central bank group

US equity futures and European stock markets performed positively following an upward movement that began in China after the People's Bank of China announced a measure to inject liquidity into the system.


Central Banks

This extra liquidity to commercial banks provided by the Central Bank ensures their determination to maintain low-interest rates and expansionary monetary policy to facilitate access to credit and the issuance of corporate bonds.

China's action is framed in a global context of stimulus policies necessary to remove the economy from the stagnation caused by the pandemic crisis and, as such, is viewed positively by investors.

Unfortunately, the number of contagions is still high in the world without clear signs that the situation is under control. In Europe, travel restrictions between countries are increasing as new outbreaks appear, which already hurts sectors as relevant to the European economy as tourism and transport.

Therefore, waiting for a vaccine to be in use, which will take months, all support from governments and central banks serves as a stimulus to maintain the investors' mood.

Without this, the stock markets would have been unable to achieve the recovery that we have witnessed in the last three months.

Commodities

Commodities have also had a positive behavior with this news, with the only exception of OIL that remains capped by the resistance zone around $43.

After a lateral response within a narrow trading range during the last month, OIL shows signs of exhaustion in the short term.

Expectations on the evolution of the demand for oil and liquid fuels are not too promising with a drop of around 8Million barrels per day compared to the previous year, a decrease that could be higher if travel restrictions are increased and/or new lockdowns are ordered.

A correction to the area around $38 would be within the possibilities in this potential environment.


However, GOLD has resumed its bullish momentum after the abrupt bearish correction of $2000 in just three days.

The conditions for an upward movement of the precious metal are not only maintained. Still, they are increasing as central banks, such as the Central Bank of China today, flood the system with liquidity to support the economy. Real interest rates in major countries or economic zones become increasingly negative.

Warren Buffet has revealed in the quarterly report of his investment fund a colossal bet on gold through purchases in mining companies. This fact acquires greater relevance since Buffet had always dismissed the investment in the precious metal because he considered it to lack financial value.

GOLD has a first resistance level in the $1980 zone and an intermediate resistance in the $2000 zone, after which it would make its way to new all-time highs.


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