Equity markets in Europe finished higher yesterday as dealers were hopeful that more central banks would take a leaf out of the Fed’s book and cut interest rates.
There was chatter the European Central Bank as well as the Bank of England would lower rates too, and that speculation spurred buying. The rallies in Europe weren’t huge as some traders were sceptical about the prospect of lower rates. In addition to that, the deepening health crisis in Italy will cause further disruption in the country as it was announced the government will close all schools and universities in a bid stop the spread of the health crisis. It is the third-largest economy in the eurozone, so traders will be monitoring the situation.
US equity markets got off to a fairly decent start as the dust had settled from the major loss suffered on Tuesday. The buying of US equities was fuelled by the speculation that other central banks would lower rates also.
The bulls didn’t have to wait too long, as in quick succession the, IMF announced a $50 billion coronavirus health fund scheme and US lawmakers approved a fund worth $7 billion. The updates helped the Dow Jones, S&P 500 as well as the NASDAQ 100 extend their gains. Former vice president Joe Biden saw a comeback on Super Tuesday, which assisted sentiment too as he is more business friendly than Bernie Sanders. The Dow Jones and the S&P closed up more than 4%
The bullish run spilled over to Asia where stocks are higher thanks to the hopeful mood.
The Bank of Canada (BoC) cut rates from 1.75% to 1.25%. It was the first rate cut since 2015, and keep in mind the bank held rates at 1.75% for nearly one year. The sizeable cut was clearly influenced by the Fed’s decision on Tuesday. It feed into the attitude that other central banks would copy the Fed.
The services reports from the US were mixed as the final reading of the services PMI update was 49.4 – the first contraction since 2016. The ISM non-manufacturing reading was 57.3, the highest in one year. The new orders component of the ISM report was a bullish 63.1.
The beige book showed the health crisis caused a material change in the growth outlook for the US. The update said there was some evidence of restaurants and theatres seeing a drop-off in customers, while some freight hauliers were operating on reduced hours. The districts of Kansas City as well as St Louis saw growth grind to a halt.
US jobless claims will be announced at 1.30pm (UK time), Economists are expecting 215,000, which would be a slight dip from the 219,000 registered last week. Yesterday, the ADP employment report for February came in at 183,000, topping the 170,000 forecast. The stellar January reading of 291,000 was revised down to a solid 209,000.
US factory orders are expected to show a 0.1% fall, and the update will be posted at 3pm (UK time).
OPEC will kick-off their two-day meeting today. Earlier in the week the Joint Technical Committee recommended that OPEC and its allies, cut production by 600,000-1,000,000 barrels per day. Oil tumbled when that news broke has traders took the view that a sizeable production cut suggests that demand is weak.
There has since been talk of OPEC+ looking to cut production by 1.5 million barrels, but at the same time, there was suggestions that Russia are not keen on such a move. It was reported the Saudis are proposing a 1.2 million bpd cut.
The latest EIA report showed that oil inventories increased by 785,000 barrels while the consensus estimate was for a build of 3 million barrels. Gasoline stockpiles fell by 4.3 million barrels, but traders were expecting a fall of only 1.78 million barrels.
The Bank of England governor, Mark Caney, is due to speak at University College London, the event take place between 4.30pm and 6pm (UK time).
Stephen Poloz, the head of the BoC will be speaking at 5.45pm (UK time). The update will be interesting in the context of the 0.5% rate cut decision yesterday.
EUR/USD – rebounded late last month and if the bullish move continues it might target 1.1249. A pullback might find support at 1.1030, the 50-day moving average.
GBP/USD – has been pushing lower since late January and further losses might target 1.2600. A rebound might encounter resistance at the 50-day moving average at 1.3011.
EUR/GBP – rallied from mid-February and while it holds above the 100-day moving average at 0.8515, the outlook should stay positive, and it might target 0.8786. A move below the 0.8600 zone should bring 0.8515 into play.
USD/JPY – has been pushing lower for over one week and while it holds below the 200-day moving average at 108.38, the bearish move should continue, it might target 106.48. A retaking of the 50-day moving average at 109.48 could open up the possibility of 110.00 being targeted.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.