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Optimism in equities set to continue as health woes slide

Optimism in equities set to continue as health woes slide

Stock markets rallied yesterday as it seemed as if the health crisis in China is showing signs of improvement.

Sadly the number of confirmed cases of coronavirus increased but the growth rate appeared to be slowing, which give traders some hope.

Some businesses in China went back to work while the authorities called on companies to try and meet their output targets. The country’s Premier, Xi Jinping, said the government’s measures to stem the spread of the crisis are working. Seeing as China has shaken off the image of being on lockdown, dealers were less worried about the health crisis.

The DAX set record-high, record-highs were seen on Wall Street too. It says a lot about the strength of the markets when they are setting all-time highs despite the health crisis. It is clear the actions of the Chinese government, both in terms of the financial markets, as well as the managing of the health situation on the ground has greatly altered the perception of the situation.

Copper as well as oil rallied yesterday on account of the decline in the fear surrounding China. The commodities suffered greatly in the last few weeks because dealers were afraid China’s economy would be hampered by coronavirus, but traders were tempted by the relatively low prices, especially in light of the change in sentiment in relation to China.        

The US JOLTS report came in at 6.42 million, which was a big miss of the 7 million forecast. The November reading was revised down to 6.78 million from 6.8 million. The US labour market is robust, but keep in mind there has been a clear decline in the number of new job openings in the past year, which could be a sign the US economy is close to full-employment. 

The pound pushed higher yesterday in the wake of the UK growth figures. The preliminary reading of fourth-quarter GDP showed there was 0.0% growth on a quarterly basis, while the third-quarter update was revised higher to 0.5% from 0.4%. The yearly measure showed 1.1% growth in the time period, and the reading for the third-quarter was revised higher to 1.2% from 1.1%. The figures were nothing special but overall they were well received.       

The Reserve Bank of New Zealand kept rates on hold overnight, meeting forecasts. Equity markets in Asia largely gained ground as the coronavirus seems to be spreading at a slower pace.

The eurozone industrial production report will be posted at 10am (UK time) and economists are expecting a fall of 1.6% on a monthly basis, which would be a sharp fall from the 0.2% posted in November.  

Jerome Powell, the Fed chief, will be back speaking in front of lawmakers at 3pm (UK time) today. Yesterday Mr Powell said the US economy was in a good place, but at it is likely to suffer somewhat on account of the fall-out from the health crisis in China.  

At 3.30pm (UK time) the energy information administration will release the latest oil inventory report. The consensus estimate is that oil stockpiles will rise by nearly 3 million barrels, while gasoline inventories are tipped to rise by 546,000 barrels.

EUR/USD – has been pushing lower since late December and while it holds below the 50-day moving average at 1.1091, the bearish move might continue. Support might be found at the 1.0900 area. A break above 1.1172 should pave the way for 1.1249 to be retested.

GBP/USD – while it holds above the 1.2900 area the wider positive move should continue. A break above 1.3284 should pave the way for the 1.3500 area to be retested. A break below 1.2900 should pave the way for 1.2768 to be tested. 

EUR/GBP – surged on Monday but while it holds below the 0.8600 mark, the broader bearish trend is likely to continue. A drop below 0.8387 might bring 0.8276 into play. Resistance might be found at 0.8600. 

USD/JPY – has pushed higher and while it holds above the 50-day moving average at 109.25 the wider bullish trend should continue, and it might retest the 110.00 area. A move below 108.30 might put 107.65 on the radar.

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