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Mood remains cautious amid health crisis

Mood remains cautious amid health crisis

The health crisis was again at the forefront of traders’ minds yesterday, and European stocks suffered. 

The DAX 30 and the FTSE 100 fell to their lowest levels since June and April respectively, while the CAC 40 dropped to a four week low. Worries about rising Covid-19 case numbers and the various new measures introduced by governments in the UK, France, Spain and Italy to tackle the health crisis weighed on sentiment. Even the German government has expressed concerns about its circumstances. Hospitality, travel and transport stocks saw some of the largest declines as they are on the front line when it comes to the stricter restrictions.

US equity markets held up better than their European counterparts, but the pandemic is an issue nonetheless. In 36 states, the hospitalisation rate for the coronavirus increased by at least 5% over in the past seven days. Traders keep an eye on the hospitalisation rates because the authorities want to ensure the healthcare services aren’t overwhelmed – that can often be a trigger to bringing in tougher restrictions. The S&P 500 closed a little lower, while the NASDAQ 100 posted decent gains.

The US Presidential election is less than one week away. Nancy Pelosi, the Speaker of the House of Representatives, claimed she is still hopeful about reaching an agreement on a relief deal with Republicans before voters to the polls, but that seems less and less likely. The Republican controlled Senate has been adjourned until after Election Day. It is worth noting that some Republican Senators were balking at the size of the stimulus proposals from Pelosi.

Equity markets in Asia are mixed and US index futures have declined. European indices are called a little lower. Bitcoin hit its highest level since January 2018 – the cryptocurrency seems to have benefited from the sour sentiment that has circulated in stocks lately.    

Oil rallied yesterday as supply concerns outstripped demand woes. Adverse weather in the Gulf of Mexico has prompted some oil companies to evacuate workers from the area. On Monday, WTI and Brent crude fell to three week lows so it was starting from a low base. Dealers will be monitoring whether Tropical Storm Zeta gets upgraded to a hurricane or not. Putting aside the current weather situation, the oil market has been traditionally very sensitive to the perceptions about global demand, and in light of the escalating health crisis, the demand woes are likely to resurface.

Volatility in sterling has been low and UK-EU trade talks will remain in focus as there is hope that both sides will reach an agreement by mid-November. Issues such as fishing remain contentious. The EU has form when it comes to reaching a deal at the last minute so the discussions are likely to drag-on. 

Gold pushed higher yesterday as the softer US dollar lifted the commodity – the inverse relationship between the two markets aided the metal. It wasn’t the only commodity to rebound yesterday, as industrial metals – silver, platinum and copper – all recouped some of the massive losses they endured on Monday.

At 7am (UK time), German import prices for September will be published and they are expected to fall to -4.8%, from -4%. A fall in prices could be a sign that demand is dwindling.

French consumer confidence is tipped to dip from 95 to 93 in October. The reading will be published at 7.45am (UK time).

The Bank of Canada will publish its interest rate decision at 2pm (UK time) and economists are predicting that rates will remain on hold at 0.25%. The unemployment rate in Canada dropped to 9% last month – the lowest since March. It is encouraging to see that the economy is recovering but given the uncertainty surrounding the health crisis, the central bank is unlikely to make any alterations to its monetary policy anytime soon.

The EIA report will be published at 2.30pm (UK time) and oil and gasoline inventories are expected to be 1.23 million barrels and -960,000 barrels respectively.        

EUR/USD – has been moving higher since late September and while it holds above the 50-day moving average at 1.1794, the positive move should continue, and it might retest the 1.2000 area. A move below 1.1684, should put 1.1612 on the radar.  

GBP/USD – recently retreated from a six week higher and while it holds above the 100-day moving average at 1.2865, the uptrend should continue. 1.3269 might act as resistance, and a move beyond that mark, could put 1.3515 on the radar.     

EUR/GBP – while it holds above the 0.9000 mark, it might look to retest the 0.9157 area. A break below 0.9000 could see it target 0.8864.

USD/JPY – remains in the wider downtrend and if the negative move continues it could target 104.00. A rally might run into resistance at the 50-day moving average of 105.56 and a move above that, could see it target 107.00.                         

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