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Health concerns persist, all eyes on BoE

Volatility in stock markets was low yesterday as there was a lull in terms of news stories. 

The European indices closed modestly higher but the session was fairly uninteresting. Trading ranges were small and volumes were thin as there wasn’t much in terms of news that traders could sink their teeth into.

Optimism was doing the rounds in relation to the Dexamethasone story. The drug, which is a low-dose steroid, has helped reduce fatality rates in Covid-19 patients. Dexamethasone has performed well in a clinical trial, which is very positive, and on top of that it is cheap and in high supply. There are hopes the drug will be used as a treatment for the virus.

Jerome Powell, the head of the Fed, was testifying before the House Financial Services Committee yesterday. The central banker said it would be unwise for Congress to curtail its support for the economy too quickly. The scale of this crisis is so large it needs very loose monetary and fiscal policies to try and tackle the situation. Mr Powell said the Fed is ready to act in terms of additional support should it be required. The mood on Wall Street was a little downbeat and the S&P 500 finished 0.36% lower.

Sentiment in stock markets in East Asia is fragile as the partial lockdown in Beijing has become more restrictive, dozens of flights have been cancelled for example. US index futures are lower on the back of rising infection numbers in states like Texas and Arizona, and with that European indices are called lower.    

The UK CPI rate fell from 0.8% in April to 0.5% in May – a four-year low. There were some worries the reading wasn’t an accurate reflection, because roughly 30% of the prices that go into the calculation could not be collected, so therefore the figure should not be relied upon. In light of the weaker commodity prices between the months in question, it is highly likely the CPI rate fell but we can’t be sure how far. 

The Bank of England (BoE) will announce their interest rate decision today at 12pm (UK time). Interest rates are tipped to remain at the record low of 0.1%. There is a belief in the markets the BoE will increase the asset purchase facility by £100 billion, and that would bring it to £745 billion. Some traders are speculating the stimulus package will be upped by £150 billion.

The oil market lost a little ground yesterday, but it is worth remembering it enjoyed a very bullish move on Tuesday as the IEA raised its demand forecast for 2020. On Tuesday night, the API report showed that stockpiles rose by 3.9 million barrels, while the consensus estimate was for a draw of over 150,000 barrels. Yesterday, the EIA update showed that US stockpiles increased by 1.21 million barrels, but dealers were expecting a fall of 800,000 barrels. The same report revealed there was a draw in gasoline inventories of 1.66 million barrels, so in a way that counteracted the surprise build in the oil stockpiles. Traders monitor the energy inventory data as a way to try and gauge demand.

Recently, the US dollar has been attracting safe-haven flows, and conversely it has come under pressure when dealers have been in risk-on mode – it fell to a three-month low last week, when equity benchmarks in Europe and the US were at three- and four-month highs respectively. The US dollar index nudged up yesterday, and that was possibly driven by an absence of a robust rally in stocks.

Housing data from the US yesterday showed that things are starting to recover in terms of activity. The building permits and the housing starts for May came in at 1.22 million and 974,000 respectively. The readings were considerably lower that what was posted before the health emergency, but crucially they both showed improvements on the month.

The Swiss National Bank is expected to keep rates on hold at -0.75%. The decision will be posted at 8.30am (UK time). 

At 1.30pm (UK time) the US will publish a number of economic reports. The jobless claims reading is tipped to fall to 1.3 million, from 1.54 million in the previous reading. If the level does fall, it will be the eleventh week in a row that it fell. The counting claims reading is predicted to be 19.8 million, and keep in mind the previous update was 20.92 million. Economists are expecting the Philly Fed manufacturing reading for June to be -23, which would be a big improvement on the -43.1 registered in May.   

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, and a move through that area, could see it target 1.1025, the 200 day moving average.  

GBP/USD – has been moving lower for one week and if the bearish move continues, it might target 1.2427, the 50-day moving average. A move higher could run into resistance at 1.2684, the 200-day moving average.   

EUR/GBP – has been in an uptrend for over one month and if it retakes 0.9054, it might target 0.9239. A move lower might find support at 0.8845, the 50-day moving average.  

USD/JPY – has been driving lower in the past few sessions and support could come into play at 106.00. A rebound might run into resistance at 108.42, the 200-day moving average. 


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