The European trading session saw low volatility yesterday.
It ebbed and flowed in both directions and there was no clear theme throughout the session. The FTSE 100, DAX and CAC 40 finished down by 0.18%, 0.22% and 0.43% respectively.
The mood in equity markets was upset by the comments from Peter Navarro, a trade advisor to the Trump administration. Mr Navarro is known to be critical of the Beijing authorities, and he was on form yesterday as he claimed that China was trying to steal US vaccines through intellectual property theft. The advisor cautioned the Chinese authorities might seek to use the pandemic as a way of expanding their strategic and economic influence on the world stage. Mr Navarro said the US government needs to be better prepared should a second wave of Covid-19 infections strike. It is likely he was referring to how western nations are very dependent on personal protective equipment from China. The commentary impacted equity sentiment on both sides of the Atlantic, but the negative move was not long-lived.
Last night Jerome Powell, the head of the Federal Reserve, set out the strategy for the Main Street Lending facility – the scheme that was set up to provide loans to small and medium-sized business. The minimum loan size has halved to $250,000, while the maximum loan size might be set at $300 million, and keep in mind the previous guidance was $200 million. The repayment period has now been set at five years, an extension from the four years that was previously listed. The changes to the initiative are done with the intention of being able offer more companies loans, so ultimately it should have a better impact on the US economy. Mr Powell said the scheme is ‘days away’ from issuing its first loans.
The much better than expected US jobs report that was posted on Friday played a role in the positive sentiment witnessed yesterday. The fact the US labour market clawed back some of the jobs that were lost in April gave traders a lot of hope as it suggests the loosening of the lockdown restrictions are helping businesses to reopen. US indices ended last night on a bullish note, as the S&P 500 managed to finish in positive territory for 2020. The NASDAQ 100 set a fresh record close.
Stocks in mainland China, Hong Kong and Australia are up on account of the bullish moves seen in the US. The Australian market was playing catch-up as it was closed on Monday because of a public holiday. European indices are expected to open higher.
WTI and Brent crude oil yesterday fell by over 3% after it was clarified that Saudi Arabia, the UAE and Kuwait will not be committing to any voluntary productions cuts. Over the weekend OPEC+ confirmed there will be a continuation of the deep production cuts into July. That initially helped the oil market, but the announcement that there wouldn’t be extra cuts from the three countries in question put downward pressure on the energy. Oil has undergone a considerable rebound since April, so yesterday’s bearish move wasn’t a huge shock.
Christine Lagarde, the head of the ECB, defended the enormous stimulus package. Last week, the PEPP was ramped up from €750 billion to €1.35 trillion. Some policymakers felt it was unnecessary to boost the scheme so soon after the original programme was announced. The central banker was under attack from some EU lawmakers who fear for the rising debt levels of many eurozone nations. Ms Lagarde claimed the colossal stimulus package was proportionate to the size of the crisis facing the currency bloc. The update was a fine example of the ECB’s willingness to keep the show on the road at all costs.
At 7am the German trade balance for April will be posted and economists are expecting a surplus of €10.2 billion, which would be a drop from the €12.8 billion posted in March. Imports and exports are expected to show declines of 16% and 20.3% respectively.
The revised reading of the eurozone’s first quarter GDP will be posted at 10am (UK time). The quarterly metric is expected to be 3.8%, while the yearly metric is anticipated to be 3.2%.
The US JOLTS report for April is expected to 5.75 million. The figure will be announced at 3pm (UK time).
A video conference call between the finance and economic ministers of the EU will take place today.
EUR/USD – has been pushing higher since early May and if the bullish run continues it might target 1.1495. If there is a pullback, it might find support in the 1.1200 region.
GBP/USD – is in an uptrend and it is now above the 200-day moving average at 1.2667. A further rally might run into resistance at 1.3000. A break below 1.2667 might find support at 1.2382.
EUR/GBP – has been in an uptrend for one month and if it retakes 0.9054, it might target 0.9239. A move lower might find support at 0.8826, the 50-day moving average.
USD/JPY – yesterday’s daily candle has the potential to be a bearish reversal, and a break below the 200-day moving average at 108.39 might pave the way for 107.65, the 50-day moving average, to be tested. If the recent high of 109.85 is retaken, it should put 111.71 on the radar.
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