Stock markets in Europe were mixed for most of the session yesterday but selling pressure picked up towards the close of trading and the indices in the UK, France and Italy finished down more than 1%.
The aggressive move to the downside in the last 30 minutes of trading in Europe was influenced by the US indices.
There is a growing feeling that things are going backwards in terms of the health emergency. Yesterday, it was reported that Tokyo posted a record number of new cases, while Hong Kong will retighten restrictions on account of the number of fresh cases. In the US, Alabama saw a record number of cases, while Florida posted a record number of hospitalisations and fatalities. Earlier in the week, the WHO said it wouldn’t be surprised if the death rate increases as the infection rate has risen recently, but the fatality rate is still lagging behind. Traders will be paying close attention to the number of deaths, as that could be the tipping point for politicians to reverse the reopening of their economies.
According to Unacast, a data location platform, footfall at retail parks in states such as Arizona, Georgia, and Texas has declined as they have rowed back on the reopening of their economies. Traders are going to have to get used to the idea that Covid-19 is going to be hanging around for the foreseeable future. Policymakers will have to strike a balance between having an economy that is functioning reasonably well and keeping the virus in check. It is clear that places that loosened their restrictions too soon broadly saw a jump in the number of new cases – hence why most stock markets have moved lower in the past month. One of the obvious exceptions is the NASDAQ 100, but stocks like Apple, Amazon, Netflix and Microsoft are extremely unique. Last night, the NASDAQ 100 set yet another record high, while the S&P 500 ended down over 0.5%.
Equity markets in Asia are in the red as continued health concerns weigh on sentiment. Yesterday, the US registered over 60,500 new cases of Covid-19, a new record, and that hit stocks in the Far East. It was reported that schools in Hong Kong will close again for health reasons, and Australia wants to stagger the return of its citizens for quarantine purposes.
The US dollar saw a lot of volatility yesterday. At the start of the session, the dollar index fell to its lowest level in over three weeks. When stocks started to sell off in the afternoon, it rallied as traders sought it out for as it has been a popular safe-haven play recently.
The inverse relationship between gold and the greenback remains strong, so therefore the metal was hit by the jump in the currency. Gold has been pushing higher in recent weeks, and on Wednesday it hit its highest level in over seven and a half years, so a pullback wasn’t a surprise Silver hit a 10-month high in the day, but like gold it retreated due to the firmer US dollar.
Fears surrounding the health crisis and the possibility that lockdowns will be reintroduced weighed on oil. The energy market is very sensitive to the perception about the health of the global economy, hence the declines in WTI and Brent crude.
Yesterday, it was suggested that the EU will have ‘time-limited’ access to London’s financial infrastructure after the end of the transition period. The UK’s clearing service in relation to the transactions on the financial markets is vital to Europe as a whole, as the EU clearly want to safeguard themselves. The move should help financial stability in the region.
At 7.45am (UK time) French industrial production will be posted and economists are expecting 15.1%, and that would be a big rebound from the -20.1% posted in April.
Italian industrial production in May is tipped to be 22.8%, and keep in mind the April report was -19.1%. It will be announced at 9am (UK time).
The Canadian jobs report will be revealed at 1.30pm (UK time). The unemployment rate is anticipated to fall from 13.7% in May to 12% in June. The employment change reading is expected to show that 700,000 jobs were added last month. It is worth noting that 289,600 jobs were added in May. The data will be posted at 1.30pm (UK time).
At the same time, the US will post its PPI numbers. Headline PPI and core PPI are expected to be -0.2% and 0.4% respectively.
EUR/USD – since early May it has been in an uptrend, but it has been trading sideways recently. If it holds above the 1.1168 zone, it could target 1.1495. A break below the 1.1168 area might pave the way for 1.1046, the 200-day moving average, to be targeted.
GBP/USD – since late June it has been in an uptrend, and should the positive move continue, it might target 1.2689, the 200-day moving average. Yesterday’s candle has the potential to be a gravestone doji, and a move lower could see it target 1.2435, the 100 day moving average. A move through that level should put 1.2812 on the radar. A drop below 1.2251, might bring 1.2076 into play.
EUR/GBP – Tuesday’s daily candle has the potential to be a bearish reversal, and if it moves lower it might find support at 0.8875, the 100-day moving average. A retaking of 0.9067 could see it target 0.9239.
USD/JPY – has been drifting lower for the last month and support could come into play at 106.00. A rebound might run into resistance at 108.37, the 200-day moving average.