02-6-2020 10:04:27It was a choppy day yesterday for European and US stock markets.

Sentiment was rising in the first half of the day, but the horrendous labour data from the US acted as a wake-up call to the severe economic impact of the pandemic. The downbeat mood didn’t last too long as dealers soon got over the news.  The trading session took another interesting turn when Donald Trump drove up the price of oil by stating he predicted the global oil supply would be curtailed, and that sparked buying into the close of the European session.

The US labour market took another hammering as yesterday’s jobless claims report ballooned to a record 6.6 million. The report counts the number of people who applied for unemployment benefits for the first time in the past week. When you take account of the 3.3 million reading last week, it would suggest that nearly 10 million jobs were lost in the past fortnight.

After weeks of declines, oil’s luck changed yesterday on the back of the comments from President Trump, who said Saudi Arabia and Russia could cut production by ‘10 million barrels, or more’. Traders interpreted that as an output cut of 10 million barrels per day (bpd). 

The US leader then went on to tweet saying the output cut could be up to ‘15 million’. The energy market soared on the back of the update. Oil closed off the highs of the day as some of the euphoria fizzled out. Dealers began to question the size of the potential cut, as well as the timing of such a move. Nonetheless, Brent crude ended the session up 17.8%, while WTI finished up 24.6% - its highest daily percentage gain on record.

The monster rally in the oil market was a welcome distraction from the pandemic, and it set the tone for the rest of the trading on Wall Street. The oil majors racked up huge gains, and that helped the Dow Jones and the S&P 500 close up in excess of 2%.

Overnight the Caixin survey of Chinese services was posted, and the reading was 43, while economists were expecting 39.6. The February reading was 26.5. Trading in Asia has been subdued, and the stock markets are slightly in the red. Oil handed back some of its mega gains. The number of people infected with Covid-19 has topped 1 million, so that is hanging over sentiment too.  

It was a quiet day in terms of economic indicators from Europe. The eurozone PPI reading for February dropped to -1.3%, from -0.7% in January. The sharp fall could be attributed to weaker commodity prices and/or lower demand. If prices are falling at the factory level, it is likely that will put pressure on CPI – which is already falling.

In the UK, the Nationwide house price index showed a gain of 0.8% in March, which was a big difference from the 0.1% fall that traders were expecting. In late March, the government recommended that people don’t move properties during in the current climate. In addition to that, banks have pulled a lot of their mortgage products, so the next month’s HPI report is likely to see a tumble.

The greenback enjoyed another positive move yesterday. The turbulence in the markets has prompted traders to seek out safe havens, and it would appear the dollar is benefitting from the risk-off play. The euro has been weak recently as it has lost ground versus the US dollar, the pound and the Japanese yen. The dollar hasn’t managed to make much headway versus the pound in the past few sessions.  

Between 8.15am (UK time) and 9.30am (UK time) the final reading of the services PMI reports for major European economies will be posted. Spain, Italy, France, Germany and the UK will announce the updates, and economists are expecting 25.5, 22, 29, 34.3 and 34.8 respectively.

The US non-farm payrolls report for March will be announced at 1.30pm (UK time) and the consensus estimate is for 100,000 jobs to have been lost. The February report showed that 273,000 jobs were added. The unemployment rate is expected to tick up to 3.8% from 3.5%, while the average earnings rate is tipped to hold steady at 3%.

Eurozone retail sales for February are expected to cool to 0.1% from 0.6% on a monthly basis, and the reading will be posted at 10am (UK time).

The ISM non-manufacturing report is expected to come in at 44, and the figure will be released at 3pm (UK time).      

EUR/USD – has turned lower recently and while it holds below the 1.1000 mark, the negative move is likely to continue, and further losses might see it target 1.0870. A retaking of 1.1000 might put 1.1147 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 1.2857. 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 0.8594 – 100-day moving average. A break above 0.9000 might send it to the 0.9100 area.         

USD/JPY – has been pushing lower for over one week and while it holds below the 200-day moving average at 108.31, 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.

 


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