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Equity sentiment remains weak as Q2 begins, US ADP jobs data in focus

Equity sentiment remains weak as Q2 begins, US ADP jobs data in focus

Equity markets in Europe closed higher yesterday as much stronger-than-expected economic data from China boosted sentiment. 

Market confidence was also helped by a comment from the World Health Organisation, who said the health crisis in Europe seems to be approaching its peak. European stocks closed higher yesterday, but they had an awful quarter. In the first three months of 2020, the FTSE 100 and the DAX lost roughly 25%, the FTSEMIB declined by 28% and the IBEX 35 fell by 30%. Keep in mind all the markets closed well above the March lows so the situation was even uglier a few weeks ago. The Covid-19 crisis has made its mark on the eurozone economy as headline CPI fell to 0.7%, while the core reading slipped to 1%. A drop in demand is a consequence of the lockdowns.

US equity markets closed lower last night. It was a negative end to a brutal quarter where the Dow Jones lost approximately 23%. The number of Covid-19 related deaths in the US has now exceeded that of China – according to data compiled by John Hopkins University. On the bright side, a medical official, Dr Anthony Fauci, said there are early indications that social distancing is working.

Overnight the Caixin survey of Chinese manufacturing was released. The update is often viewed as a more accurate reading of manufacturing in China as it is impartial. The reading for March came in at 50.1, while the consensus estimate was 45.5, and the February level was 40.3. Stocks in mainland China were lifted by the report. The Bank of Japan’s tankan survey of big manufacturers fell to -8, the lowest reading in seven years, and that weighed on equity sentiment in Japan. The mixed data from Asia has paved the way for a much lower start to the European trading session.

The oil market rebounded yesterday on the news the US government are going to begin talks with Russia with the view to stabilising the oil market. President Trump wants to protect the shale industry at home as firms operating in that space would struggle to survive should the oil price hang around these levels for a prolonged period. Moscow would welcome an easing up of US imposed-sanctions in relation to the Crimea annexation, but Washington DC might consider that a step too far.

Oil wasn’t the only commodity to enjoy a move higher yesterday as copper and palladium rallied too. The official manufacturing PMI and non-manufacturing PMI reports from China pointed to a U-turn in terms of activity. The updates showed an enormous rebound from the deep contraction in business activity in February, to the small expansion in activity last month. Some traders have their doubts about the reliability of the reports, but broadly speaking the updates were well received – hence the move higher in industrial metals.  

The greenback rallied for much of the session yesterday, which in turn put pressure on sterling, the euro and the yen. The US posted some reasonably resilient data yesterday, which might suggest the full-force of Covid-19 has yet to hit the economy.

The Chicago PMI level dropped from 49 in February to 47.8 in March – the consensus estimate was 40. The Conference Board consumer sentiment reading for March was 120, easily topping the 110 forecast. The previous reading was 132.6, so the drop-off wasn’t that big when you take into account the lockdowns. It is possible the pandemic has caused a pivot in the economy whereby consumers started spending more money on household items. Some factories might have been called upon to increase output as a response to the health crisis.

Gold lost ground in the previous two sessions. The metal enjoyed its best weekly rally since 2008 last week, but the rebound in the greenback hit the asset. On Monday, it was announced the Russian central bank would halt gold purchases from 1 April.                

At 7am (UK time), the German retail sales report will be posted, and the reading is expected to be 0.1%, which would be a fall from 0.9% in the previous month.

The major economies of Europe will post the final readings of their manufacturing PMI reports this morning. Italy, France, Germany and the UK will reveal their numbers, and economists are expecting 40.5, 42.9, 45.5 and 47 respectively. The reports will be posted between 8.45am (UK time) and 9.30am (UK time).   

The eurozone unemployment rate will be posted at 10am (UK time). The consensus estimate is for it to remain on hold at 7.4%.

The US labour market will be in focus as the ADP employment is expected to show that 150,000 jobs were lost, and keep in mind that 183,000 jobs were added in February. When you take into consideration last week’s jobless claims report surged to 3.28 million, the -150,000 forecast seems a little high. The ADP figures will be published at 1.15pm (UK time).

The final reading of the US ISM manufacturing report is tipped to be 45, and the report will be published at 3pm (UK time).

Given the volatility in the oil market recently, the Energy Information Administration report will be given more attention. Oil stockpiles are expected to grow by 4.5 million barrels, while the gasoline inventories are predicted to rise by over 2 million barrels. The figures will be published at 3.30pm (UK time).            

EUR/USD – has been pushing higher for over two weeks, and while it holds above the 50-day moving average at 1.0997, the positive move should continue. 1.1236 might act as resistance. A break below 1.0997 might put 1.0870 on the radar. 

GBP/USD – has been driving higher recently and if the bullish move continues it might target the 100-day moving average at 1.2879. Should the currency pair undergo a pullback, it might retest the 1.2000 area.   

EUR/GBP – is in a downtrend and further losses might see it target 0.8758 – 200-day moving average. A break above 0.9000 might send it to the 0.9100 area.         

USD/JPY – has been pushing lower for nearly one week and while it holds below the 200-day moving average at 108.30, the bearish move should continue. Support might be found at the 106.00 area. A push higher from here could see it retest the 110.00 zone. 







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