Equity markets in Europe endured large losses yesterday as health fears and isolation concerns for the UK dominated headlines.
There has been a mutation in Covid-19 and it is spreading at a much faster pace. The strain is believed to be up to 70% more transmittable and that is why tougher restrictions have been introduced in England. The FTSE 100, DAX 30 and CAC 40 closed down 1.7%, 2.8% and 2.4% respectively.
The new health fears prompted several countries to halt flights from the UK as a way of trying to stop the spread of the new variant of coronavirus. The French government took the harshest measures, not only banning flights from Britain but also freight too. It has been confirmed that the new strain of the coronavirus has been identified in Austria, Denmark and the Netherlands, so there is a risk that more countries have already been infected. Yesterday the UK was given the cold shoulder but it is possible that other nations will be in line for the isolation treatment in the near future.
In recent weeks, negotiations between the UK and the EU have been dragging on and a deal has yet to be sorted out. The talks are still bubbling way in the background but in the short term they might take a back seat to the fresh health fears. Sterling saw a lot of volatility yesterday and came under pressure in the morning as the new strain of the virus and a lack of progress with respect to the UK-EU trade talks dented the currency. Prime Minister Johnson announced he was making a plea with respect to fishing in a bid to broker a deal with the EU and that gave the pound a shot in the arm, but the CMC GBP index still finished in the red. Differences still remain with respect to fishing. The UK-French trade situation should improve as the Paris administration is looking to lift its freight ban, and that should ease some concerns with respect to supply chains.
Stocks in Asia are in the red and European indices are tipped to have a mixed open. US markets had a mixed finish as the Dow Jones closed slightly higher on the session, while the S&P 500 ended the day almost 0.4% lower. Lawmakers in the US voted in favour of the $900bn Covid-19 relief package as well as a $1.4trn government funding scheme. The coronavirus stimulus package includes $600 payments, a $300 weekly federal unemployment payment and $284bn for the paycheck payment program (PPP) – a lending scheme for small businesses.
The US dollar caught a bid when stock markets were enduring painful declines, but the greenback handed back a lot of it gains when equity benchmarks recovered a little. Sterling’s upward move on the back of Johnson’s commentary in relation to the EU trade talks chipped away at the dollar’s gains too.
By and large, it was a brutal day for commodities. The firmer dollar and the renewed heath concerns encouraged dealers to dump copper, platinum, palladium and oil. It is worth noting that commodities had a positive run last week. Bitcoin hit a new all-time high yesterday, but the bullish run didn’t last long as it retreated from the record high.
At 7am (UK time), the final reading of UK GDP for the third quarter will be posted. Economists are expecting the level to be unchanged from the initial reading of 15.5%, and that would be a big improvement on the -19.8% registered in the second quarter. Public sector net borrowing is tipped to be £27.3bn, and keep in mind the October reading was £21.58bn. England was on lockdown last month so it’s no surprise that government borrowing is anticipated to jump.
The German GfK consumer sentiment reading for December will be announced at the same time and the consensus estimate is -8.8, which would be a fall from the -6.7 posted in November, which was the weakest level in five months.
The final reading of US GDP for Q3, posted at 1.30pm (UK time), is expected to be unchanged from the second reading at 33.1%. In the second quarter, the level was -31.4%. It will be posted at 1.30pm (UK time). At 3pm (UK time) the existing homes sales report for November is released, with economists expecting a figure of 6.7m, which would be a dip from the 6.85m posted in October.
EUR/USD – has been in an uptrend since the start of November and while it holds above the 50-day moving average at 1.1910, the positive move should continue. The 1.2300 area might act as resistance. A pullback might find support at 1.1800.
GBP/USD – since late September it has been in an uptrend and if the positive move continues, it could target 1.3608. A pullback might find support at 1.3210, the-50-day moving average, and a break through that metric should put 1.3000 on the radar.
EUR/GBP – has been in an uptrend since up late November and while it holds above the 200-day moving average at 0.8989, the positive move should continue. 0.9291 could act as resistance. A break below 0.8989 could put 0.8864 on the radar.
USD/JPY – is still in its wider downtrend and if the bearish move continues it could find support at 102.00. A rebound could encounter support at the 50-day moving average at 104.41.