The intense expectation of more fiscal and monetary stimulus wouldn't let a downside correction develop healthily despite the continuous flow of news getting from bad to worse. Major US stock indices rebounded more than 1% on Thursday, even though the business reopening was halted in Texas due to the rapidly rising new cases. Infections jumped in Arizona and California and Apple closed 14 shops in Florida. Meanwhile, the US jobless claims rose 1.480 million last week, more than the analyst forecasts hinting that the post-COVID recovery in the jobs market isn't as strong as expectations, and more damage is to come with the renewed containment measures in several places. Today's data should confirm a robust rebound in US consumer spending in May, despite a significant loss of revenue due to the business lockdown and depressed labor market conditions. US banks (+2.71%) led gains after the Federal Reserve's (Fed) stress test found them solid enough and ‘well capitalized under even the harshest' of downside scenarios. Still, the Fed capped dividends and banned the banks from share buybacks to preserve healthy capital levels in the coming months. Latter measures could be discouraging for bank stock investors as they would prevent banks from tempering a negative price shock if the global sell-off were to intensify. On the other hand, the US Senate passed a legislation aiming to penalize banks doing business with Chinese officials who ‘seek to undermine Hong Kong's autonomy or erode the basic freedoms promised to HongKongers' via the new national security law. But the legislation should be approved by the House to spark reaction from China and investors. Still, shares in Hong Kong (-0.57%) ticked lower, but gains were dominant elsewhere. The ASX 200 and Nikkei advanced 1.55% and 1.40% respectively, as Kospi gained 1.17%. Having managed to rapidly reverse earlier losses on Thursday, the European indices are set for a positive start to the last trading day of the week. The FTSE 100, more shaken than injured, will likely close the week flat above the 6200p mark. WTI crude rebounded from $37 per barrel and prepares for another attempt above $40. But fears of further damage to the global oil demand could eclipse that caused by the optimism of seeing more fiscal and monetary stimuli and cap the upside potential above the $40 mark. Robust demand in safe haven assets tells that investors remain prudent despite a synthetically boosted risk appetite. Gold remains bid above the $1,750 per oz as the downside risks in equities prevail on the back of a clear negative bias in global news. Meanwhile, the depressed US yields give a further support to the precious metal keeping the cost of opportunity at very low levels. In the currency markets, the US dollar index remains steady near the 97 mark. The EURUSD sees dip-buying demand below the 1.12 level and should keep its head above the critical 1.1160 Fibonacci support unless we see a sudden deterioration in the global risk appetite. Cable consolidates near the 1.24 handle and the downside pressure in sterling dissipates as the ‘moment of truth' in Brexit negotiations are pushed back to October, pulling a certain pressure off the investors' shoulder. But the EU expects a political compromise from the UK in next week negotiations, and the UK remains firm on its decision to not make any compromise. So, the pound bulls will continue walking a tightrope, which should limit the upside potential before the 200-day moving average, 1.27. The Bank of England's (BoE) Quarterly Bulleting will likely maintain the emphasize on increased risks to the economic outlook due to the pandemic and the lingering Brexit uncertainties, but market reaction should remain muted. — The writer is senior analyst at Swissquote Bank
