The prospect of a coronavirus stimulus package was in focus yesterday.
Roughly half way into the European trading session President Trump said that Congress had restarted talks with respect to a stimulus package for the airline industry and as well as other aspects of the economy. It seemed that the US leader changed his tune a little because it was only on Tuesday that he halted the entire stimulus talks. Either way, traders took their cues from Mr Trump so that lifted equity markets in Europe.
Shortly before the end of the European session, Nancy Pelosi, the House Speaker, said there would be no special relief programme for the airline sector without an all-encompassing stimulus scheme. The news put a little pressure on US stocks, in fact the Dow Jones briefly turned negative, but it quickly recovered. The major indices in Europe posted solid gains, and so did the US equity benchmarks. Pelosi is not sure what the prospects for a deal are, but she is hopeful. The S&P 500 hit its highest level in over one month.
The health crisis is still rumbling away in the background. The World Health Organisation announced that the number of new daily cases surged by over 338,000 – a record level. Spain, France and the UK are some of the counties that saw a jump in the number of cases. Dealers haven’t forgotten about the pandemic but the stimulus chatter takes preference.
Overnight, the Caixin survey of Chinese services for September came in at 54.8 – the highest level in three months. The consensus estimate was 54.5, and the August reading was 54. Markets in mainland China reopened for the first time since September as the country observed a public holiday. Chinese stocks are up over 2% as they played catch-up with the rest of the world on account of the US stimulus hopes.
Oil had a big rally yesterday on the back of supply concerns. A category 3 hurricane is set to hit the Gulf of Mexico. It was reported that over 90% of the crude oil production in the region has been taken offline as workers have been evacuated from the oil rigs. The Gulf of Mexico accounts for approximately 17% of US oil output, so that pushed up WTI and Brent crude. Also in the mix was the news that oil workers in Norway went on strike and there is a prospect of further industrial action. The energy market hit its highest level in over two weeks.
The US dollar drifted lower last night as the sentiment in stocks was positive. Traders were keen to take on more risk and snap up stocks so they shied away from the greenback – which has been a popular safe-haven play in the last few months.
The labour market in the US is slowly improving but it is still extremely weak in the grand scheme of things. The initial jobless reading fell from 849,000 to 840,000 – its lowest level since the health crisis kicked in. The continuing claims reading is one week behind the initial jobless claim report, and it dropped to 10.97 million – the lowest level since April.
The move lower in the dollar makes gold relatively cheaper to buy as the asset is listed in the currency. Gold posted a small gain due to the move in the greenback, but it is still down on the week because it had a painful fall on Tuesday.
At 7am (UK time) the UK GDP reading for August will be posted, and economists are expecting it to be 4.6%, which would be a drop from the 6.6% that was registered in July. At the same time, the UK industrial output, manufacturing output and construction output will be posted, and the consensus estimate is 2.5%, 3% and 5% respectively.
The Canadian unemployment rate is expected to fall to 9.7% from 10.2%, and the employment change is tipped to be 156,600, which would be a drop off from the 245,800 posted in August.
EUR/USD – has been moving lower since early September and while it holds below the 50-day moving average at 1.1800, the bearish move should continue, and it might find support at 1.1557, the 100-day moving average. If the wider bullish trend continues, it should target 1.2000.
GBP/USD – has been moving higher for over one week and if the positive move continues it should retest the 50-day moving average at 1.3029. A break below 1.2675 could put 1.2480 on the radar.
EUR/GBP – since mid-September it has been edging lower and a break below 0.9000 might put 0.8864 on the radar. A rebound might run into resistance at 0.9157.
USD/JPY – Tuesday’s candle was bullish, and if it holds above the 50-day moving average at 105.80, it could target 106.52, the 100-day moving average. A break below 104.94, should put 104.00 on the radar.