Equity markets on both sides of the Atlantic had stellar sessions yesterday as the bulls were given several reasons to snap up stocks.
A mixture of optimism in relation to economies being opened up again, upbeat commentary from Fed Chair Jerome Powell, and positive results in relation to progress on a potential Covid-19 vaccine all helped indices.
In Europe, the DAX and the CAC 40 gained over 5%, while the FTSE 100 rallied in excess of 4%. In the US, the S&P 500 finished up more than 3%, while the tech-focused NASDAQ 100 gained just shy of 2%. It is interesting that the broader index, the S&P 500, outperformed last night, because recently tech has been top dog. A rally in airline, banking and energy stocks helped the S&P 500 rack up impressive gains.
The stars were aligned yesterday as far as the bulls were concerned. Continued optimism about governments easing up on restrictions and in turn reopening areas of their economies was a factor in the positive move. Over the weekend, Jerome Powell, the Fed chief, delivered a positive message in an interview on 60 Minutes. Mr Powell is confident the US economy will see a solid recovery in the second half of 2020. To underline his confidence in the rebound, he said not to bet against the US. Mr Powell’s conviction was highlighted as he declared there is ‘no limit’ to what the Fed is willing to do in terms of lending.
European stock markets were firmly in positive territory by the middle of the session, and the icing on the cake was when Moderna Inc, announced that its potential Covid-19 vaccine showed positive results in phase one of the human trials. The next phase of trials will be undertaken soon, while the third phase of trials – which will include thousands of patients – might be conducted in July.
The bullish sentiment in the US spilled over to Asia as hopes for a vaccine lifted stock markets in China and Japan.
President Trump lashed out at the World Health Organisation as the US leader threatened to permanently cut ties with the body.
The oil market enjoyed a major rally yesterday as traders bought into the energy as perceptions about demand changed. As lockdown restrictions are being unwound, the belief is that demand for oil will increase. It is understood that China’s demand for oil is nearly back to pre-pandemic levels. The rally in the oil market also came from the supply side too. Last week it was announced that Saudi Arabia will cut production by a further 1 million barrels per day (bpd). There was talk that OPEC+ would like to extend the current output cut beyond June. US companies have been cutting output, and that was evident in the Baker Hughes active rig report, which showed the number of active oil and gasoline active rigs fell to the lowest on record.
Last night it was announced that Germany and France supported plans to launch a €500 billion coronavirus rescue fund. The scheme proposed by the nations would see the EU commission raise money in the markets, and the regions of the EU that have been worse hit would receive funds in the form of grants. Countries such Denmark, the Netherlands and Austria are opposed to the idea of large-scale grants, as they would prefer to see loans being dished out. The situation is likely to develop further in the near term so traders will be paying close attention. The EU economic and finance ministers will be taking part in a conference call today.
The gold market saw some volatility yesterday, as in the early hours of the trading session the metal hit its highest level since late 2012, but it finished in the red. The precious metal normally slides when stock markets are bullish, and that’s what we saw yesterday. Traders were very much in risk-on mode. Silver has more industrial uses, which is why it rallied. The same is true of copper, platinum and palladium.
Gold lost ground even though the US dollar fell too, so that indicates how keen dealers were to dump the asset. The greenback was under pressure due to Mr Powell’s comments about doing what it takes to assist the US economy.
At 7am (UK time) the UK unemployment rate will be posted, and it is tipped to be 4.4% which would be a jump from the 4% in February. The average earnings excluding bonuses for March is tipped to be 2.6%. The claimant count for April is anticipated to be 676,500, which would be huge jump from the 12,100 posted in March.
The German ZEW economic sentiment reading is tipped to be 32. The reading will be announced at 10am (UK time).
At 1.30pm (UK time), the latest US building permits and housing starts will be revealed, and the consensus estimate is 1 million and 927,000 respectively.
Jerome Powell will testify before the Senate Banking, Housing and Urban Affairs Committee at 3pm (UK time).
EUR/USD – has been range bound recently and a break below the 1.0768 area should pave the way for 1.0636 to be tested. A move higher from here might run into resistance at 1.1000.
GBP/USD – is in a downtrend and while it holds below the 50-day moving average at 1.2292, the bias should remain to the downside, and it might target 1.2000. The 200-day moving average at 1.2653 might act as resistance.
EUR/GBP – while it holds above the 100-day moving average at 0.8679, the bias might remain to the upside, and 0.9000 might act as resistance. A break below 0.8679 might pave the way for 0.8600 to be tested.
USD/JPY – has been pushing lower since March and a break below 106.00 might see it target 104.00 108.26, the 200-day moving average, might act as resistance.