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Top 5 Things to Know in the Market on Wednesday, July 1st

·4-min read

By Geoffrey Smith

Investing.com -- Texas and California post new record highs for Covid-19 infections, as Anthony Fauci warns that the U.S. is losing control of the virus. Europe's economy shows signs of further improvement, while China makes its first arrests in Hong Kong under the new national security law. Stocks are set to open lower ahead of the ISM Manufacturing Index later, while oil prices are regaining momentum after fresh signs of falling output and recovering demand. Here's what you need to know in financial markets on Wednesday, 1st July.

1. California, Texas post new infection records

Texas reported a record-high 6,900 new coronavirus cases Tuesday, while California reported a new record high of 8,441, according to Reuters. The numbers amplify the warning on Tuesday from the U.S.’s top doctor Anthony Fauci that the country is losing control of the epidemic.

Fauci, head of the National Institute for Allergy and Infectious Diseases, said that the U.S. “is going in the wrong direction” and warned that new infections could top 100,000 a day. His words came ahead of the July 4th weekend, on which public events and family gatherings are set to pose heightened risks of transmission.

Fauci said around half of all new cases are currently coming from four states: California, Texas, Florida and Arizona.

A poll for CNBC showed that the virus’ progress was increasingly feeding through into negative ratings for President Donald Trump less than five months ahead of November’s election.

2. Europe improves at jobless surge eases

Europe’s economy showed further signs of improvement after its collapse earlier in the second quarter.

The composite IHS Markit purchasing managers index for the euro zone June was revised up to 47.4, while the index for the U.K. rose above the 50 level, suggesting that the economy has stopped contracting. The Bank of England’s chief economist Andrew Haldane, who had voted against increasing the bank’s bond-buying last month, also said the U.K. rebound is proceeding faster than expected.

In addition, the rise in German unemployment slowed sharply in June to only 69,000, well below expectations for a 120,000 rise. French auto registrations rose in year-on-year terms for the first time this year.

3. Stocks set to open lower; ISM eyed

U.S. stocks are set to start the third quarter on a negative note, as concerns about the spread of the virus – and a possible further chill in relations with China – dominate sentiment.

By 6:30 AM ET (1030 GMT), the Dow futures contract was down 161 points, or 0.6%, while the S&P 500 futures contract was down 0.5% and the Nasdaq 100 futures contract was down 0.3%.

The unease about risk assets is being reflected in the price of Gold, which advanced to a new eight-year high after closing above $1,800 for the first time since 2012 on Tuesday. By 6:30, it was at $1,805.65 a troy ounce, up 0.3% from Tuesday’s close.

Stocks in focus will include Constellation Brands (NYSE:STZ), brewer of the world’s most unfortunately-branded beer, and General Mills (NYSE:GIS), both of whom report earnings. The day's big data release is the ISM Manufacturing Index at 10 AM, which is expected to rise from 43.1 in May to 49.5 in June. There's also the ADP private payrolls report for June.

4. China cracks down in Hong Kong

Chinese police made their first arrests in Hong Kong under the new security law, which was enacted on Tuesday.

The law, which provides for life sentences against those convicted of subversion, sedition and terrorism, was imposed without being read in the city’s own legislature.

CNN reported around 70 arrests in response to protests that were relatively small by comparison with earlier pro-democracy actions before the coronavirus pandemic exploded.

5 Oil rebounds on rebalancing evidence

Crude oil prices regained some upward momentum after data showing a clear drop in exports in June from Iraq, the biggest over-producer in the OPEC+ bloc.

By 6:30 AM, U.S. crude prices were up 2.4% at $40.22 a barrel, while the international benchmark Brent was up 2.2% at $42.33 a barrel.

The mood was also helped by a much larger-than-expected draw in U.S. crude stocks – as reported by the American Petroleum Institute – which reassured traders that the process of market rebalancing hasn’t yet been derailed by the surge in U.S. Covid-19 cases.

The extent of the rebalancing was further illustrated on Tuesday – albeit with numbers that were largely of historical interest - as the Energy Information Administration said U.S. oil output had fallen in April to 12.06 million barrels a day, over 300,000 b/d more than it had previously estimated.

The government’s own inventory data for last week are due at 10:30 AM ET.

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