Stock markets in Europe and the US sold off aggressively yesterday as coronavirus-related fears hit market confidence. 

The increase in the rate of new Covid-19 cases in countries that have eased lockdown restrictions caused concern among traders. The progress that was made, in relation to getting a handle on the health crisis and the reopening of economies, is at risk of being undone now that countries such as Germany, China and South Korea are experiencing an uptick in new cases. The FTSE 100 lost just over 1.5%, while the DAX, the CAC 40 and the FTSEMIB all declined by more than 2%. The UK has only recently set out plans to relax its restrictions, so it is probably less likely to see a jump in the rate of new cases as Continental economies are further along in the process of unwinding restrictions.

The US equity markets started out relatively calm, but the selling pressure increased after a few hours of trading. Jerome Powell, head of the Federal Reserve, said the downside risks are significant, and the economic suffering might last for an extended period. The US authorities have already thrown vast sums of money at the problem, but Mr Powell said that more fiscal stimulus might be worth considering. There is a fear the US economy could be stuck in a prolonged recession if the situation isn’t handled correctly. Dealers were quick to cut their equity positions. More than half of US states have taken measures to reopen their economies in some form or another, so traders are nervous about the possibility of new Covid-19 cases jumping.

Stock markets in the Far East are offside as the health fears soured sentiment in that part of the world. There are growing concerns we could be dealing with the coronavirus for some time to come. The Australian unemployment rate rose to 6.2%, while the employment change was -594,000, the CMC AUD index is in the red as a result.   

The shift to a risk-off strategy by traders pushed up the gold market. The metal is considered to be a classic safe haven play, and the asset saw a rise in demand. In the past few weeks, gold has been relatively subdued - it has usually been $20 either side of $1,700. The metal hit its highest level in over seven years last month, and even though it has cooled since then, the wider upward trend is still in play.

The oil market saw a lot of volatility yesterday as the energy jumped on the back of the EIA report which showed that US oil stockpiles surprisingly fell by 745,000 barrels – traders were expecting a build of 3.8 million barrels. It was the first time since January that US oil stockpiles fell. The energy update showed that gasoline inventories dropped by 3.51 million barrels – a larger than expected fall. The figures point to an increase in US energy consumption. Despite the tumble in inventories the commodity pushed lower. It would seem the fears that weighed on stocks, also hit the energy market.

The economic pain caused by the coronavirus crisis was made apparent in the UK growth numbers. The preliminary reading of first-quarter GDP was -1.6% on an annual basis, while the consensus estimate was -2.1%. On a quarter-on-quarter basis, the reading was -2%, and traders were anticipating -2.5%, and the final reading of 2019 was 0.0%. It is highly likely the UK is on track for a technical recession, but real questions are, how deep will the contraction be, and how long will it last? 

The latest PPI data from the US also underlined the impact of the health crisis. The headline reading for April was -1.2% from 0.7% in March. The core figure was 0.6%, which was a sizeable fall from the 1.4% in the previous update. Demand at the factory level has taken a hammering, and it will probably trickle down to the consumer in the form of a lower CPI rate.

Last night, Andrew Bailey, the head of the Bank of England, said in an interview that the QE scheme was introduced to take some of the pressure off the government, and hopefully avoid a return to austerity. Mr Bailey suggested the QE scheme could be increased too.

At 7am (UK time), German CPI will be posted and the consensus is 0.8%. Spanish CPI is tipped to be -0.6% and the reading will be announced at 8am (UK time).

US jobless claims are expected to be 2.5 million, which would be a dip from the 3.16 million posted last week. The update will be revealed at 1.30pm (UK time).

The Canadian dollar might see volatility this afternoon as Stephen Poloz, the Bank of Canada chief, will be speaking at 3.30pm (UK time).   

EUR/USD – has been range bound recently and a break below the 1.0768 area should pave the way for 1.0636 to be tested. A move higher from here might run into resistance at 1.1000.     

GBP/USD – has lacked direction recently, but while it holds below the 50-day moving average at 1.2371, the bias should remain to the downside, and it might target 1.2165. The 200-day moving average at 1.2650 might act as resistance. 

EUR/GBP – while it holds above the 100-day moving average at 0.8659, the bias might remain to the upside, and 0.8865 might act as resistance. A break through 0.8659 might pave the way for 0.8600 to be tested.

USD/JPY – has been pushing lower since March and a break below 106.00 might see it target 104.00. 108.22, the 200-day moving average, might act as resistance. 

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