Yesterday was a double whammy for the financial markets as the deepening coronavirus crisis and the new spat between Saudi Arabia and Russia over the oil price brought about colossal moves in the markets.
The FTSE 100, DAX and the CAC 40 all lost more than 7%, while the FTSEMIB fell in excess of 11%. The slump in equities was on par with the moves seen during the banking crisis. A section of Northern Italy – the nation’s industrial centre, was placed on lockdown in a bid to contain the health crisis.
A few hours after the close of European trading, the Italian government took the drastic measure to put the entire country on lockdown. The tactics have worked well in China but the economic impact has been huge. In recent weeks we have seen dreadful manufacturing as well as services data from China – the readings were below that of the 2008-2009 era, so dealers in this side of the world were running scared.
Overnight, equity markets in Asia swung from being in the red to showing modest gains, the Nikkei 225 saw a huge turnaround. President Trump said he hopes to introduce a payrolls tax cut as well as assistance for hourly workers on account of the health crisis. The US president will host a press conference later today. Haruhiko Kuroda, the head of the Bank of Japan said the central bank is ready to take appropriate action if it is needed. China’s President, Xi Jinping, visited Wuhan, the epicentre of the crisis and the move was aimed at projecting confidence about the health status of the city.
The losses on Wall Street were painful last night as the Dow Jones as well as the S&P 500 fell by more than 7.5%. The scale of the declines were similar to those registered in the financial crisis. There has been a sizeable rebound in US index futures on the back of the stimulus chatter from the Trump administration.
In the last few days a political spat between Saudi Arabia and Russia has erupted. In a bid to punish Russia for not agreeing to implement production cuts, the Saudi’s have slashed their prices and are considering raising output too. The Kingdom wants to drive down the price of oil to apply pressure to Russia, hence why we saw a massive fall in energy prices yesterday. It was the largest fall in the oil market since the Gulf War in 1991. Putin is not known to be soft so this political flight could last for some time. Oil stocks and oil services stocks were hammered yesterday on account of the move in the underlying oil market. WTI and Brent crude are now up more than 8% as the energy as recouped some of its losses.
The monster moves in oil compounded traders’ fears about the health of the global economy. The coronavirus situation sowed the seeds of fear for future demand, while the slump in the oil price added to the mayhem. The violent moves encouraged some dealers to cut and run in relation to stocks, and pour their cash into government bonds – yields fell to record-lows. The US dollar index took a battering yesterday as traders took the view the Federal Reserve will introduce further interest rate cuts. The greenback endured heavy losses versus the yen as traders sought out safe-haven assets, but now we have seen robust rebound in USD/JPY.
Overnight, Chinese CPI was posted and the reading was 5.2%, meeting forecasts. Keep in mind the previous reading was 5.4%. The PPI reading was -0.4%, while the consensus estimate was -0.3%, and the latest report was 0.1%.
French industrial production will be released at 7.45am (UK time), and economists are expecting a rebound from -2.8% in December to 2% growth in January. Italian industrial production is tipped to be 1.8%, and that would be a big rebound from the 2.7% fall that was posted in December, the figure will be posted at 9am (UK time).
The revised reading of the euozone GDP and employment reports will be published at 10am (UK time), and on a quarterly basis, traders are expecting 0.1% and 0.3% respectively.
EUR/USD – rebounded late last month and if the bullish move continues it might target 1.1570. A pullback might find support at the 1.1200 zone.
GBP/USD – has been pushing higher since late February and a break above the 1.3200 area might put 1.3284 on the radar. 1.2990, the 100-day moving average might act as support.
EUR/GBP – rallied from mid-February and while it holds above the 100-day moving average at 0.8517, the outlook should stay positive, and it might target 0.8786. A move below the 0.8600 zone should bring 0.8517 into play.
USD/JPY – has been pushing lower for over two weeks and while it holds below the 200-day moving average at 108.31, the bearish move should continue, it might target 100.00. A retaking of 105.00 might pave the way for 106.48 to be targeted.
FTSE 100 is expected to open 215 points higher at 6,180
DAX 30 is expected to open 325 points higher at 10,950
CAC 40 is expected to open 125 points higher at 4,832
Disclaimer: CMC Markets is an order execution-only service. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.