Decent data overnight buoyed risk assets yet again, but the virus overhang continues to thwart bullish ambitions.

US equities were stronger again Tuesday, the S&P closing 0.4% higher after gains in Europe and Asia and oil down a bit after the API exacerbated intraday losses. The June preliminary PMIs helped, with increases in activity than May recorded globally, and much better print than expected in Europe.

But more troubling virus headlines contained the market enthusiasm as California recorded its most substantial daily increase Tuesday. And transmission rates in New Jersey are “creeping up,” according to the state’s governor. And Texas logged more than 5,000 cases in a single day for this first time.

Amid all that, White House infectious disease expert Anthony Fauci has noted that “the next couple weeks are going to be critical.” But on a brighter note, he stated that he is cautiously optimistic vaccine might be available by the end of the year.

Solid rebound in PMIs

A solid rebound in European and US PMIs are underpinning this week’s rally in asset prices. Through the lens of survey data, at least, for now, the world’s essential economies are seeing a V-shaped and coordinated rebound that looks set to recovery through the summer in the northern hemisphere. Finger r crossed a second wave super spread does not land in our lap.

Mind you; these are diffusion indices where firms are asked whether conditions are better or worse than last month. The fact that the PMI has just about edged into the expansionary territory after the most prominent economic deep freeze on record should not be celebrated too wildly just yet. Let us see how the data bare out on a three-month rolling average.

PMIs were consistent with only a modest activity growth in many economies (e.g., US, Eurozone, China). The acid test for markets, then, is whether economies return to a pre-COVID-19 trajectory where growing was petering out or whether we are at the start of a new activity boom cycle. The start of a boom cycle would be far more positive for equities and oil while negative to the USD, where we could see the EURUSD taking charge into a 1.15-1.20 range.

Yesterday’s headline drama took some of the spotlights away from the latest PMI releases from Japan and Australia. The PMIs showed a further bounce back in activity, except for Japanese manufacturing. But local cash markets are opening up with a bit of a bounce in there step today likely supported by the improving global data scrim.

Still rising daily Covid-19 cases in the US remain front-page news but are not significantly denting sentiment as investors are not expecting renewed lockdowns. But for the risk market, that would be the ultimate in gut check if the US state governments had to make that lockdown call, and that is where the ultimate tail risk lies.

Gold hits fresh highs

Gold hits fresh year-to-date highs on weaker USD and COVID-19 worries, despite a rise in ‘risk-on’ appetite, suggesting the rally can continue even with equities marching higher.

The US dollar is down, and the gold market is higher, which is logical even though the USD and gold traded directionally together for much of this and last year.

The same increase in risk appetite may be weakening the USD, which partly explains why gold is on the upswing.

Given the shift out of money markets funds as investors seek higher yields given the robust EFT flows, this money market outflows are undoubtedly finding its way into gold, given that gold remains at the top of the must-have list for wealth managers around the world.

But its COVID-19 risk, the prospects of a much weaker USD and geopolitical risks that continue stoking gold higher.

Currency Markets

After a choppy 48 hours triggering a wave of USD weakness, the currency market seems very much inclined to echo the “risk-on risk-off” mood in equity markets this morning.

EUR/USD moved higher as French PMI readings pushed above 50.

The GBPUSD is trading better on stable risk sentiment and nudge along as June’s manufacturing PMI inches unexpectedly back above 50, and services beat consensus.

International markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp