It was another good day for oil yesterday as the energy continued the rebound that began on Wednesday.
Yesterday WTI and Brent crude closed up 19.7% and 4.7% respectively. In the past two sessions WTI has rallied over 40%, and that major move helped to lift sentiment in equities as well as metals.
The impressive recovery in the oil market was partially fuelled by President Trump, who issued a stern warning to Iran. The US leader said Iranian gunboats would be destroyed by the Navy if they harassed US ships. Naturally such a warning would get a response from the Iranian government, who made it clear they would target any ship that threatens national security. There was tough talk from both sides, but most likely nothing will come of this. Some people with a cynical outlook feel ‘The Donald’ picked a fight over nothing to stoke political tensions. Second guessing the US president aside, the verbal scuffle was a factor in oil’s sharp move higher.
Speculation about possible production cuts in oil boosted the energy too. It’s no secret the US is running low on storage capacity. The energy regulator in Oklahoma said that producers could close their wells and not lose their leases. That opens the door to lower output. OPEC+ revealed plans to cut output by nearly 10 million barrels per day from next month, but there was talk that some members are contemplating additional cuts.
Other markets were taking their cues from oil this week. The bullish move in oil helped European stock markets post respectable gains yesterday. US equity benchmarks were firmly in positive territory in the first few hours of trading, but then it was announced that Remdesivir – an antiviral drug by Gilead Sciences – flopped in its trial as a potential treatment for Covid-19. The news took the wind out of the bulls’ sails, and US stocks broadly finished flat. Gilead still maintain the drug can benefit Covid-19 patients, but dealers remain unimpressed.
Late last night the US House of Representatives supported the $484 billion rescue package. The US president has indicated he would sign off on the deal. The bulk of the funds will be used to assist businesses impacted by the lockdowns. Mr Trump cautioned that social distancing guidelines might need to be extended into early summer.
Overnight, stock markets in the Far East traded lower as the news about the unsuccessful Remdesivir medical trial played on traders’ minds. Oil prices gained ground in the past few hours, while gold has eased a little, but is still comfortably above $1,700.
The US dollar had a volatile run yesterday. It was in positive territory for much of the day, but then it turned sharply lower after the Small Business Administration issued guidelines that would make it hard for large corporations to access the government lending scheme. The greenback recouped its losses after a few hours.
EUR/USD was dragged around by the swing in the greenback, but the single currency was weaker across the board on account of the dismal services and manufacturing data from France and Germany. A reading below 50.0 in a PMI report denotes a contraction. The flash services PMI report for France and Germany tumbled to 10.4 and 15.9 respectively. Both reports were record lows for each country. The manufacturing reports from both countries were nowhere near as bad, but they both point to painful contractions in activity.
The UK revealed shocking economic reports too as the flash manufacturing PMI reading fell from 48 in March to 32.9 in April. The services data was far worse as the April reading crashed to 12.3. Despite the awful reports, the CMC GBP index pushed higher.
Last night the EU conference aiming to tackle the health crisis ended without an agreement. European leaders were agreed that an enormous rescue package was required but politicians were divided over its size and whether the funds would be dished out as loans or grants. Ursula Von der Leyen, the President of the EU commission, suggested the package would be worth at least €1 trillion. France, Spain and Italy are pushing for grants, while the likes of Germany and Austria are in favour of loans as they want the money to be repaid. In the end, a mixture of grants and loans will probably be agreed upon as a compromise.
The US economy endured more pain yesterday, but traders seemed to be immune to the readings. The jobless claims reading was 4.4 million, exceeding the 4.2 million consensus. The previous two readings were 5.23 million and 6.6 million, so the rate is in decline. The new homes sales report for March was -15.4%. The flash manufacturing PMI and the flash services PMI reports were 36.9 and 27 respectively – both showed major declines from March.
At 7am (UK time) the UK retail sales report will be posted. The headline reading is tipped to be -4%, which would be a big drop from the -0.3% posted in February. The reading that strips out fuel is expected to be -3.5%.
Economists are anticipating the German IFO business climate rate to fall from 86.1 in March to 80 in April. The data will be released at 9am (UK time).
The US durable goods update is expected to slump by 11.2%, Keep in mind the February reading showed growth of 1.2%. The update that removes transportation is tipped to be -5.8%. The figures will be posted at 1.30pm (UK time).
At 3pm (UK time) the final reading of the University of Michigan consumer sentiment report will be posted, and the consensus is 68.
EUR/USD – while it holds below the 100-day moving average at 1.1014, the currency pair could lose further ground. Support might be found at 1.0768, and a break below it might pave the way for 1.0636 to be tested. A move through 1.1014 might put 1.1147 on the radar.
GBP/USD – has been in an uptrend since late March and resistance might come into play at 1.2646 – 200-day moving average. Beyond that metric, the 1.2800 region might act as resistance too. A move lower from here might see it target 1.2165.
EUR/GBP – has been pushing lower since mid-March and should the bearish trend continue it might target 0.8626 – the 100-day moving average. A rebound might target 0.8865 or 0.9000.
USD/JPY – is in a negative trend and further losses from here might see it target 106.91. A move through 106.91 might put 106.00 on the horizon. A move above 109.38 could see it target 110.00.