The announcement of an Easter lockdown in Germany increased demand fears for crude oil, and sent major contracts into freefall. The concerns about the outlook for the European economy spread to other risk assets, knocking shares lower and reversing recent strength in base metals. In contrast, the US dollar and Japanese yen rose, and bonds rallied, as investors sought haven.
The lockdown in Germany follows similar moves in Italy and France this month. The reality of a slower vaccination schedule and ongoing restrictions is shifting investor thinking away from the peak optimism of maximum support and an unencumbered economic rebound. This has implications for all risk assets given the spectacular rallies from the Covid lows.
US stocks fell harder. Re-opening stocks were hit hard, as cruise lines, airlines and bricks and mortar retailers slumped. Materials stocks were the worst performing component of the S&P 500, which outperformed other major indices due to support for interest rate sensitive utilities and real estate stocks.
The 6% to 6.5% fall in crude oil markets overnight has both technical and fundamental components. Analysts are forecasting a fifth week of increases is US inventories tonight, Libya announced significant subsidies for its re-opening oil plants and OPEC+ meets at the end of the month, with production increases a possibility. Increasing demand concerns exacerbate these potential supply issues.
The failure of Brent light crude to break through important resistance at $72 adds a chart based spur for selling. A full blown correction in oil markets could see Brent trade below $50 a barrel.
Asia Pacific stock futures are pointing to a more subdued response for regional markets. This may reflect the fact that markets such as Hong Kong have already come under pressure over the last week. Hong Kong and Australia are set to open close to flat, with a 0.5% fall in Japan and close to a 1% drop in mainland China markets. The shift in markets comes ahead of a hectic 24 hours for economic data. PMIs for Australia released this morning show an accelerating expansion in March, providing a positive start. However Japanese PMIs today, UK inflation, and UK, French German and US PMIs over the coming 24 hours will prove more influential.