Worries about an increase in the rate of new Covid-19 cases weighed on equity market sentiment yesterday. 

During the week the World Health Organisation said a new record was set for the highest daily number of confirmed cases, which was a result of governments unwinding their lockdown restrictions. A balance needs to be struck to achieve a slight return to normality in terms of business, but without sparking a big increase in the infection rate. The negative moves that were witnessed yesterday in Europe weren’t huge, but that was possibly because a large swathe of traders in Continental Europe were on holiday at it was Ascension Day.

Stock markets in the US lost some ground but the trading ranges were small as volatility was low. US states are continuing to reopen their economies. Much of the gains that were posted in the last few weeks have been driven by the prospect of things slowly getting back to normal, but there are concerns the good work done in relation to getting a handle on the infection rate could be partially undone. Amazon eked out a record high at the start of the trading session, but by the end of play it was in the red. The Fed’s Richard Clarida said additional monetary and fiscal stimulus might be required. Donald Trump said he will not close the economy if a second round of the coronavirus kick-off, so traders will be carefully monitoring the health situation in the US.  

The Hang Seng is sharply lower as it was reported that China are planning on introducing a national security law in Hong Kong. Such a move would strengthen Beijing’s control over the territory, which would probably spark protests. Last year, pro-democracy protests were common in Hong Kong, some of which caused major disruption, so traders are now worried the situation will flare up again. President Trump is likely to weigh in on the matter if the Chinese authorities take a tough stance in relation to Hong Kong.  

On account of the uncertainty caused by the Covid-19 emergency, the Chinese government has not issued a growth target for 2020 – which has also weighed on stocks in the Far East. There has been rising tensions between the US and China lately, but today China have pledged to implement its trade deal with the US.     

On the topic of progress, a number of reports that were announced yesterday painted a picture of an improvement in the economic landscape in Europe as well as the US. France, Germany and the UK posted their flash manufacturing and services PMI reports for May, and all the reports showed that levels of activity are still deep in contraction territory, but they are not as bad as there were in the previous month. For example, the German manufacturing reading was 36.8, which was a slight improvement on the 34.2 posted in April. The French services report came in at 29.4, compared with the abysmal 10.2 reading registered in April. The readings from the UK saw similar changes on the month. It is encouraging to see that economic activity is moving in the right direction, but make no mistake, the PMI levels are still awful.

It was a similar situation in regards to the US manufacturing and services PMI readings. The latest jobless claims report came in at 2.43 million, bringing the total reading to over 38 million since the pandemic took hold. The prior reading was revised down to 2.68 million, so at least yesterday’s horrendous update was an improvement. The jobless claims metric has declined for the past seven weeks in a row. The Philly fed manufacturing index for May was -43.1, which by all accounts is a terrible reading, but the April update was worse as it was -56.6. The internal components of the May report – prices paid, employment, and new orders – all showed an improvement on the month. In fact the prices paid component swung from -9.3 to 3.2 – the rebound in the oil market was probably the factor behind the move.

Oil hit its highest level since early April yesterday, for the WTI and Brent crude July contracts, as falling US stockpiles, production cuts and increased demand have boosted the market. During the week, the API and the EIA announcements showed that inventories in the US fell, so that has tempered fears about the US’s storage capabilities. Demand for oil in China is back to near pre-crisis levels.  

Metals lost ground across the board yesterday following on from Wednesday’s bullish session. The firmer US dollar put pressure on gold, but the metal was coming from a lofty level as it hit its highest mark in over seven years at the start of the week. Copper retreated from its recent two-month high. The slow reopening of economies has seen demand for industrial metals increase, which includes platinum and palladium too.               

At 7am (UK time) the UK retail sales report will be posted and economists are expecting -16%, which would be a huge drop from the -5.1% posted in March. The report that strips out fuel is tipped to be -15%, while the previous reading was -3.7%. At the same time, the UK public sector net borrowing report will be released. It is expected to jump from £2.32 billion in March to £35 billion in April.

The Canadian retail sales report will be announced at 1.30pm (UK time), and the consensus estimate is -10%, which would be a huge fall from the 0.3% registered in February. The update that excludes auto sales is anticipated to be -5%, and that would be an improvement on the -15.6% registered in the previous update.  

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 or 1.1147.    

GBP/USD – is in a downtrend and while it holds below the 50-day moving average at 1.2281, the bias should remain to the downside, and it might target 1.2000. The 200-day moving average at 1.2654 might act as resistance. 

EUR/GBP – while it holds above the 100-day moving average at 0.8689, the bias might remain to the upside, and 0.9000 might act as resistance. A break below 0.8689 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. 108.27, the 200-day moving average, might act as resistance. 

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