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More pain for European stocks expected, US jobs report in focus

It was another painful day for stock markets yesterday as the number of confirmed cases of coronavirus increased, so the old fears returned to the surface. 

Traders became more panicked as governments and international bodies’ revealed fiscal plans to help tackle the crisis. Yesterday’s European trading session started out positive on the back of the optimism created by the IMF’s $50 billion health fund that was announced on Wednesday, but the bullish move ran out of steam.

Various governments around the world have revealed plans to help control the situation, but after a while dealers started to wonder how bad is the crisis if all these governments are so desperate to announce packages aimed to alleviating the problem. At a certain point, government intervention increases nervousness, and that is what we saw yesterday.

In a space of a few days the Italian government more than doubled the size of their health fund to €7.5 billion. The administration in Rome will ask the EU’s permission to increase the budget deficit by 0.35% as a way of tacking the crisis. This projects an image of the country that’s behind the curve when it comes to dealing with the coronavirus, and it is possible we will see other countries do something similar.

The Dow Jones, the S&P 500 as well as the NASDAQ 100 all lost over 3% yesterday. The US 10-yaear yield dropped below 0.9% - a fresh record low. The move highlights the anxiety in the markets. Traders are now predicting the Bank of England will cut rates to 0.5% at the meeting later this month.  Stock markets in Asia lost ground over night as the worries about the crisis continue to batter sentiment.

The fear factor ran though the oil market too as it was announced that OPEC had agreed to cut production by 1.5 million barrels per day – which was at the upper end of analysts’ expectations. OPEC+ is the name given to OPEC and its allies, and there was talk that Russia are not keen on the cuts. Moscow has form when it comes to resisting reducing output but some sort of cut is likely to happen. Several hours after OPEC revealed the news about cut, oil fell to the session lows. Traders basically took the view that if the supply needs to cut by a sizeable amount, things must be bad in regards to future demand. 

The US dollar index fell to its lowest level in nearly 2 months as traders are anticipating the Fed will cut rates again later this month. The markets are pricing in a 65% change of the US central bank cutting rates by 0.25% at the meeting this month, despite the fact there was a 0.5% emergency cut delivered during the week.    

Gold benefited from the uncertainty in the equity markets as traders sought out assets that are deemed to be safe havens. The metal also was given a lift by the drop in the greenback. There tends to be an inverse relationship between the two markets, so the fall in the greenback was also a factor behind gold’s rally. Gold hit its highest level since 24 February – the first full trading session after the coronavirus outbreak in Italy.

At 7am (UK time) German factory orders will be published and the consensus estimate is 1.4%, which would be a big rebound from the 2.1% fall in December. The Halifax house price index report is tipped to show 0.2% growth for February. The announcement will be posted at 8.30am (UK time). Italian retail sales are expected to a show a 0.3% increase in January, and the reading will be revealed at 9am (UK time). Keep in mind the Italian economy contracted in the final-quarter of 2019 so there is chatter of recession surrounding the country.    

The US non-farm payrolls will be published at 1.30pm (UK time). The report is expected to show that 175,000 jobs were added last month, and that would be a drop-off from the 225,000 added in January. The unemployment rate is tipped to hold steady at 3.6%. Yearly average earnings are expected to cool to 3% from 3.1%. The wages figure will be closely watched as workers who earn more tend to spend more. It is a little concerning that earnings have cooled since last summer where the rate was as high as 3.5%.

The Canadian jobs report will be posted at the same time. The unemployment rate is tipped to edge up to 5.6% from 5.5%. The employment change report is expected to show an increase of 10,000.    

EUR/USD – rebounded late last month and if the bullish move continues it might target 1.1249. A pullback might find support at 1.1032, the 50-day moving average.

GBP/USD – has been pushing lower since late January and further losses might target 1.2600. A rebound might encounter resistance at the 50-day moving average at 1.3011. 

EUR/GBP – rallied from mid-February and while it holds above the 100-day moving average at 0.8515, the outlook should stay positive, and it might target 0.8786. A move below the 0.8600 zone should bring 0.8515 into play. 

USD/JPY – has been pushing lower for over one week and while it holds below the 200-day moving average at 108.37, the bearish move should continue, it might target 104.63. A retaking of the 50-day moving average at 109.48 could open up the possibility of 110.00 being targeted. 

 

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