The Dow Jones rose by more than 1% as the market ignored the weak economic data and the simmering tensions between the US and China.
US tensions with China rise
Tensions between the US and China are rising. According to the Financial Times, the US is assessing ways to punish China for its actions on coronavirus. The White House and congressional leaders are considering actions like curbing supply chains and limiting investments in the country.
Meanwhile, China has continued to complain about actions by the US. In an editorial, the communist party publication, Global Times, said that the US system was fueling Trump’s team political hooliganism. In another report, the website said that the US was a culprit of tearing the world apart amid pandemic. Further, the report complained about the decision by the US to decouple from China. It said:
“American politicians have been ramping up efforts to deflect their failure to deal with the coronavirus outbreak by promoting a global industrial chain “decoupling” from China, which is a naive move that will ultimately only hurt their own interests.”
The war of words between the two super powers risk causing immeasurable damage to the world economy. It also risks tearing apart the limited trade deal that was signed in April.
Dow Jones ignores a slew of negative data
The Dow Jones index ignored a slew of weak economic data from the US. For example, data from Challenger showed that the number of job cuts in the US rose at the fastest rate ever. Another data from the Labour Department said that more than 3.1 million people filed for jobless claims in the previous week. The continuing jobless claims rose to more than 22 million. These numbers mean that the nonfarm payrolls data will be worse tomorrow.
Only five companies in the Dow Jones index were in the red today: Intel, IBM, Pfizer, Raytheon, and Merck. On the other hand, the biggest gainers were Chevron, Exxon, Dow Chemicals, and JP Morgan.
Download our Q2 Market Global Market Outlook
Dow Jones technical outlook
On the daily chart, the Dow Jones index rose slightly and crossed the 50% Fibonacci retracement level. The price is also slightly below the 50-day EMA and has formed a small bullish engulfing pattern. Therefore, I expect the index to continue rising as bulls attempt to break past the current consolidation. On the other hand, this thesis will be invalidated if the Dow index closes below the support at $22,910.