Stock markets in Europe closed higher yesterday despite spending a good chunk of the day in the red. 

The first few hours of the European trading session yesterday could best be characterised as lacklustre, as traders seemed to be uninspired. The health crisis is sadly getting worse as the number of confirmed cases continues to rise, but there are some early positive signs – Italy registered the lowest number of new cases in almost two weeks. As far as the coronavirus is concerned, China is the blueprint of what to expect, and once traders get the impression a country’s crisis is at or approaching the peak, then more bulls might be coaxed back into the market. The WHO said the outbreak in Europe might be reaching its peak.

The push higher in European stocks into the close was influenced by the move higher in US equities. On Friday night, Donald Trump signed off on an enormous stimulus package and even though US stocks got off to a choppy start, the major indices all gained more than 3%. In the past week there has been unprecedented intervention from the Fed plus the US government, and their actions have certainly helped recoup some of the recent huge losses.

Sentiment in the oil market could not be more different from that of equities. Yesterday, the energy dropped to its lowest level since 2002. The oil market is under pressure from demand worries – there is a perception that demand will be severely curtailed but also there are oversupply fears from Saudi Arabia. It is believed the Kingdom wants to boost output as a way of driving down prices – their intention is to punish Russia for not playing ball with regard to production cuts. It was reported the US will open talks with Russia about oil, as both have an interest in stabilising the energy market. The Trump administration want to safeguard its shale industry which will struggle to survive in the long-term with prices at current levels.

Overnight, China posted its latest manufacturing PMI report, with a reading of 52, while the consensus estimate was 45, and the February reading was 35.7. The non-manufacturing PMI report was posted too, and the update was 52.3. Economists were expecting 42.1, and keep in mind the previous update was 29.6. The sharp turnaround in business activity provides hope to economies in the west that are currently in lockdown. The updates from China jolted the oil market higher, but keep in mind it was relatively cheap going into the data. Stocks in mainland China, Hong Kong and South Korea are higher on the back of the news. The Nikkei 225 is down on the session as forecasts found that manufacturing output in March is set to tumble by 5.3%.

The US dollar rebounded yesterday after six consecutive days of losses. The Fed’s open-ended stimulus scheme dented the US dollar, but then again a softer US dollar should assist the economy. The move higher in the greenback weighed on EUR/USD and GBP/USD. Sterling slipped yesterday as the ratings agency Fitch downgraded their rating for the UK from AA to AA-. The group is worried the British government will take on too much debt in providing the rescue package. The pound enjoyed a rally recently, so the move by Fitch encouraged some dealers to cut their long sterling positions.

The firmer US dollar combined with the rally in stocks yesterday put pressure on gold. The asset is quoted in dollars so there is often an inverse relationship between the two markets. The asset typically underperforms when stocks rise as gold is viewed as a safe-haven play, so when traders want to increase their risk exposure, they tend to drop gold. It is worth pointing out that gold didn’t fall that much when you consider the move higher in the US dollar and stocks, so that might speak to strength in the gold market.

The Dallas Fed manufacturing index swung from 1.2 in February to -70 in March. Admittedly, it isn’t the most important economic indicator, but it is worth remembering the colossal sums of money being deployed to combat the Covid-19 crisis are because the global economy is heading for a painful downturn.

At 7am (UK time) the final reading of the UK fourth-quarter GDP will be posted. On a quarterly basis the reading is expected to be 0.0%, while the yearly report is tipped to be 1.1%. A technical recession is defined as two consecutive quarters of negative growth, so if the final quarter of 2019 didn’t incur negative growth, the UK could keep a recession at arm’s length.

German unemployment will be posted at 8.55am (UK time). The level is expected to edge up to 5.1% from 5%.

Inflation will be in focus in Europe as the French level is expected to be 1%, while the eurozone update is tipped to be 1.2%, which would be a drop from 1.4%. The reports will be posted at 7.45am (UK time) and 10am (UK time) respectively.

Canadian monthly GDP is expected to cool from 0.3% to 0.1%, and the metric will be posted at 1.30pm (UK time).

The Chicago PMI report for March is tipped to be 40, which would be a big fall from the 49 registered in February. The US conference board consumer confidence report is expected to fall from 130.7 in February to 112 in March. The update will be interesting as it could highlight any sharp drop-off in consumer attitude to spending money.  The reports will be posted at 2.45pm (UK time) and 3pm (UK time).  

EUR/USD – has been pushing higher for over one week, 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.