Despite markets in Europe and the US both hitting their best levels since 10 March yesterday, the eventual outcomes turned out to be rather different, with markets in Europe closing at their best levels in over seven weeks, while markets in the US finished the day lower, and well off their intraday highs.
European markets were caught up in a wave of optimism brought about by the prospect of a speedy economic rebound as countries across the continent take baby steps out of various states of lockdown, while the start of tech earnings season in the US prompted a wave of profit-taking with the Nasdaq leading the declines, after Europe had closed.
The continued volatility in crude oil prices for now appears to be playing out independently of stock markets, as investors and fund managers move their capital out into longer-dated expiries.
With markets at their best levels in over seven weeks, the current bout of optimism is also being helped by the ubiquitous presence of central bank intervention, alongside trillions of US dollars, sterling and euro fiscal interventions. These interventions have helped stabilise sentiment, however they still have to face the reality of the extent of the financial and economic costs of the recent lockdowns, not to mention the intangible hidden costs that will only start to become apparent in the coming weeks.
Despite US markets finishing lower, Asia markets took their cues from the European session, edging higher as a rebound in US futures after Google’s numbers saw sentiment improve, however the absence of Japanese markets has meant trading activity has been light. The rebound in US futures means that we look set for a positive open here in European markets, which set to open at their best levels since 10 March.
Today we’ll get the first indications of the damage to US economic output in Q1, with the latest estimate of Q1 GDP. With over 25m people filing for jobless claims in the past few weeks, today’s GDP number will be the first indication of how much economic damage is about to come the way of the US in the coming weeks and months.
Even then it will seriously understate what is about to come in Q2, given that the lockdown in the economy only came into effect in the middle of March. Despite this, the March non-farm payrolls report still showed a huge decline of 701,000 jobs, a sharp reversal on February and perhaps indicative that US businesses were already gearing up for a big hit about to come in their way. Expectations are for a decline of 4%, with all of the weakness coming in March.
Against this backdrop, we’ll also get to hear from the US Federal Reserve as it gets set to meet for the first time since the last emergency rate decision all the way back in March. Recent scheduled Fed meetings have almost become a sideshow in recent months, with the US central bank preferring to act outside of its timetabled meetings and announcing market interventions outside of US trading hours. The last such action was on Thursday 9 April, when the central bank announced a new $2.3trn programme to support Main Street. The bank also said it would expand the scope of its bond-buying programme to exchange-traded funds that specialised in lower rated or junk bonds, though the limits of it will only be for companies that were investment grade until recently.
Today’s meeting is unlikely to see anything new announced, though it will be interesting to see how US policymakers flesh out the design and implementation of the raft of new measures they announced recently, as well as how various policymakers view the outlook, in the context of the huge rise in unemployment we’ve seen since the last emergency rate meeting in March.
EUR/USD – rallied up towards the 1.0900 area yesterday before slipping back. The current rebound needs to take out the high two weeks ago just below 1.1000, or risk a return to the recent lows at 1.0720. Bias still remains to the downside while below 1.1000.
GBP/USD – failed to maintain traction above the 1.2500 area yesterday, slipping back below the 50-day MA in the process. We need to move through this key resistance level to signal gains towards the 200-day MA at 1.2625. Support remains down near last week’s low at the 1.2270 area.
EUR/GBP – once again held above the 0.8680 level yesterday. A break here targets the 0.8620 area. Resistance currently comes in at the 0.8780 area as well as the highs last week at 0.8870.
USD/JPY – slid below the 106.80, with the continued lack of any rebound keeping the onus towards the downside. A slide towards the 105.00 area remains a possibility while below the 107.30 area initially, with resistance at 107.80 behind that.
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