Morning Briefing: Risk-off on renewed pandemic fears as economies reopen

Posted on May 13, 2020July 3, 2020 by Vrasidas Neofytou

Global financial markets fell on Tuesday on growing concerns about a second wave of virus infections as economies reopen. Investors worry that a premature lifting of lockdowns could lead to additional pandemic outbreaks around the world.

Furthermore, the market sentiment has soured this week after the escalation of trade tensions between US and China combined with the most recent clashes among China, Australia and New Zealand.

Coronavirus Update:

Global cases: More than 4.2 million
Global deaths: At least 291,366
Most cases reported: United States (1,369,314), Russia (232,243), Spain (228,030), United Kingdom (227,741), Italy (221,216).

Market Reaction:

US stock markets fell 2% on Tuesday as investors remain worried for the latest developments surrounding the re-opening of the US economy.

The sell-off in stocks intensified after Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, and other health officials testified before the Senate Health Committee to discuss the reopening of the economy. Fauci noted a vaccine will be essential in stopping the coronavirus spread but warned it will be a while before a usable one is available, adding that the U.S. could face more “suffering and death” if states start to reopen too quickly.

The Dow Jones index closed 457 points lower, down by 1.9%, reversing its 160 points gain earlier in the day, while S&P 500 and Nasdaq also registered steep losses, dropping 2%.
Asian markets fell 1%, following the overnight losses from Wall Street, while China and South Korea have reported more infections after restrictions were eased.

Commodities:

Crude oil:

Crude oil prices surged 6% yesterday after Saudi Arabia announced deeper voluntary production cuts in June. Meanwhile, some OPEC members would like to continue their existing oil cuts beyond June to balance the market.

WTI crude oil price rose to $26 per barrel and Brent traded near the $30 level, up 1% this Wednesday morning, after API reported a decline of 2.26 million barrels at the Cushing storage hub. If the drawdown confirmed by the official EIA inventory report later today, it would be the first drawdown in US since February, which would be positive for crude prices.

Precious metals:

Precious metals moved higher yesterday s as investors moved away from riskier assets and on expectations for more stimulus from the Federal Reserve.

Gold price moved again above the $1.700/oz level, currently at $1.705/oz while Silver and Palladium gained 1% at $15.50/oz and $1.860/oz respectively.

Forex Market:

New Zealand’s dollar fell 1.2% this morning against the US dollar and Japanese Yen, after dovish comments from RBNZ governor Orr’s “whatever it takes” comment, while the Central Bank asked local banks to prepare for negative rates by end of 2020.

Furthermore, the Kiwi extended its sell-off towards the $0.60 level after China warned New Zealand of risks to damage their relationship.
The tension begun after New Zealand Deputy Prime Minister Winston Peters said he personally thought Taiwan should be able to re-join the World Health Organization as an observer state. China’s embassy in NZ criticized Peters and reinforced the “one China” policy, which asserts Taiwan is not a separate country, threatening to retaliate with trade tariffs as it has done with Australia on beef exports.

Economic Calendar for May 13, 2020 (GMT+ 3:00):

Morning Briefing: Risk aversion on pandemic and resumption of trade tensions

Posted on May 12, 2020July 3, 2020 by Vrasidas Neofytou

Global financial markets fell on Tuesday morning on risk aversion sentiment in response to the escalation of trade tensions between China against US and Australia. Market sentiment has also deteriorated over growing worries about a second wave of pandemic infections as global economies reopen.

Coronavirus Update:

Global cases: More than 4.18 million
Global deaths: At least 286,336
Most cases reported: United States (1.347,916), Spain (227,436), United Kingdom (224,332), Russia (221,344), and Italy (219,814).

Market Reaction:

The Nasdaq index rose by 0.6% on Monday, posting its sixth consecutive advance as major technology and healthcare shares extended their recent gains. The gains in the tech stocks helped Dow Jones and the S&P 500 to recover from early-session losses, finishing the day with minor damages.

However, US futures dropped 1% this morning after U.S. President Donald Trump opposed to renegotiate the U.S.-China “Phase 1” trade deal.

Major Asian-Pacific stock markets fell 1% on Tuesday morning on the resumption of trade tensions between China against US and Australia in response to pandemic accusations.

Commodities:

Crude oil:

Crude oil prices dropped 2% on Monday over the fear for a second wave of pandemic infections that could hinder the recovery of global oil demand. WTI and Brent crude oil prices settled at $24.15 and $29.60 per barrel, respectively.

*Fig.02: Brent crude price, Daily chart*

However, both contracts had an intraday rally of 3% after Saudis Arabia’s announcement for additional 1 million per barrel production cuts from June 1st, together with the already 3.8 mbpd cuts from the OPEC+ deal. The kingdom’s production will be 7.5 mbpd, nearly 4.8 mbpd lower production from its April record levels. Following Saudi Arabia’s announcement, Kuwait and the UAE said they would also implement additional cuts to balance the market.

Precious Metals:

Gold prices traded near the key level of $1.700/oz, losing more than $30/oz since last Friday on a stronger US dollar. The yellow metal has lost its safe haven title these days as investors prefer the safety of US Treasuries and the greenback ahead of the escalation of trade tensions and pandemic fears.

Forex Market:

The Australian dollar pulled back from monthly highs of 0.655 against the US dollar, falling to session lows of 0.645 after the escalation of China-Australian trade tensions. China has suspended beef imports from four Australian abattoirs and its planning to impose 80% tariffs on imported barley, in retaliation to Australian’s demand for an independent investigation into the pandemic outbreak.

The US dollar was stronger across the board on Monday as fears of a second wave of infections combined with escalation of trade tensions have driven safe-haven demand. DXY- dollar’s index against major peers broke above the 100 key level, finishing the day at highs of 100.30.

Economic Calendar for May 12, 2020 (GMT+ 3:00):

Morning Briefing: Global markets extended gains as more countries restart their economies

Posted on May 11, 2020July 3, 2020 by Vrasidas Neofytou

Global financial markets surged on Monday morning, extending their last week’s gains as more countries around the world are restarting their economies. Wall Street rallied 1.5% on Friday despite the biggest monthly job losses since the Great Depression, as investors bet on the reopening of US businesses.

Coronavirus Update:

Global cases: More than 4.09 million
Global deaths: At least 282,553
Most cases reported: United States (1,329,072), Spain (224,350), United Kingdom (220,449), Italy (219,070), Russia (209,688).

Market Reaction:

US stock markets rose on Friday on a general risk-on sentiment. Dow Jones index climbed by 2% at 24.333 while S&P500 and Nasdaq Composite gained 1.6%.

All three indices posted their first weekly advance, where Nasdaq rallied by 6% for the week, while Dow Jones and S&P 500 followed with 2.5% and 3.5% respectively.

The Nasdaq Composite has rallied nearly 40% since hitting an intraday low of 6.600 on March 23rd. That rally has been led largely by mega-cap tech stocks such as Facebook, Amazon, Apple, Netflix, Google-parent Alphabet and Microsoft.

Apple share gained 2% on Friday, after it announced the reopening of its US stores, with temperature checks and a limited number of customers in the location at one time. Disney share rose 3% as its Shanghai Disneyland park resumed operations after it closed on January 25th.

Asian markets surged on Monday morning, following the gains from the US markets. Nikkei and Hang Seng indices led the gains with 1.5% while Nifty and ASX 200 indices followed with 0.6% in gains.

Crude Oil:

Crude oil prices surged 5% on Friday, supported from the ongoing production cuts from US Shale oil drillers and Canadian oil sand producers. Crude oil rally was boosted at the end of last Friday’s session, after the oil services firm Baker Hughes reported that the number of active oil rigs fell to 292, down by 33 since last week, which was the lowest number since the 2008 financial crisis.

Furthermore, the energy market has started witnessing higher crude oil demand as more global economies reopen, while the gasoline demand has rebounded since the removal of restrictions.

The WTI oil contract ended last week with 25% in gains while Brent crude with 17% profits on improved energy fundamentals. That was the second week in a row where crude oil contracts ended with double-digits gains.

Forex Market:

DXY-dollar’s index bounced to 99.70 this morning despite the weaker US economic data and record unemployment rates. The Greenback gets support from the resumption of business and manufacturing activity in major States such as California, Michigan, and Ohio.

Risky currencies such as the Australian and New Zealand dollars extended their recent gains against major currencies, recovering almost all the losses from the pandemic. Both currencies have also gotten support from the improved US-China trade negotiations given their strong trade ties with China and commodity price recovery of Copper and Crude oil.

Economic Calendar for May 11, 2020 (GMT+ 3:00):

Morning Briefing: Markets surged on US-China talks ahead of Non-Farm Payrolls

Posted on May 8, 2020May 27, 2020 by Vrasidas Neofytou

Global financial markets surged on Friday on improved risk sentiment after the positive talks between the US and China to implement their “phase one” trade deal. Nasdaq composite index has erased all pandemic-related losses on tech shares rally. Investors expect the release of the worst US Non-Farm Payroll report and unemployment rate due to pandemic.

Coronavirus Update:

Global cases: More than 3.8 million
Global deaths: More than 268,000
Most cases reported: United States (1,254,740), Spain (221,447), Italy (215,858), United Kingdom (207,977), and Russia (177,160).

Market Reaction: Nasdaq up 1.5%, recovering its losses for 2020

The Nasdaq composite rose 1.5% on Thursday, recovering all of its losses for 2020. The technology index has gained more than 35% since it bottomed on March 23 on pandemic fears, led by an ongoing climb in tech giants such as Netflix, Amazon, Google, Apple and Paypal.

US futures rose by more than 1% this morning following the overnight gains and the risk sentiment after the positive developments in the US-China trade talks. Nasdaq and Dow Jones futures were up by 1.3%, implying an opening near 9.230 and 24.250 point respectively.

Asian markets surged 2% on US-China trade talks

US top officials Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer spoke to Chinese Vice Premier Liu He on late Thursday, discussing the trade matters including the “phase one” deal that was signed in January. The call came as investors globally raised concerns over increasing tensions between the U.S. and China — two of the largest economies in the world.

Asian markets surged 2% on Friday morning following the risk-on sentiment from Wall Street. Nikkei index led the gains with 2.6%, breaking above key resistance level of 20.000 points, while Kospi, Hang Seng and Nifty followed by 1.5% gains.

US Non-Farm Payrolls & Unemployment rates ahead

Investors are looking ahead for a terrible Non-Farm Payrolls report later today. The U.S. economy is expected to have lost about 22 million jobs in April, with an unemployment rate of 16%, the highest since 1982.

Furthermore, the US Jobless claims data released yesterday, reporting 3.169 million initial unemployment claims for the week ended May 2, more than economists’ forecast of 3 million, and bringing total claims since late March to 33.5 million, or about one in every five workers.

Gold price jumped 2% on higher US Jobless claims

Gold price surged 2% to $1.720 per ounce on Thursday on safety flows, after the surge of US jobless claims and weaker US dollar. In addition, the precious metals got support from the aggressive monetary policies across the world to support the economies from pandemic fallout.

Forex Market: US dollar weaker on negative rates expectations

US dollar fell from monthly highs on weaker US economic data and on expectations that the high unemployment rates will lead the Federal Reserve to apply negative rates for the first time ever.

*Fig.03: DXY-dollar’s index, 1-hour chart*

The DXY-dollar’s index against a basket of six other major currencies fell near the 99.70 level, well below Thursday’s high of 100.50.
The riskier currencies such as Australian and New Zealand currencies advanced by 1.5% against US dollar, reflecting the economic recovery and risk-on sentiment after pandemic.

Economic Calendar for May 08, 2020 (GMT+ 3:00):

Morning Briefing: Euro currency fell on weaker economic data and growth forecasts

Posted on May 7, 2020May 27, 2020 by Vrasidas Neofytou

Euro currency has extended its recent losses across the board on weaker EU economic data and after the European Commission forecasted the Eurozone economy would contract by a record 7.7% in 2020 due to the damage from the pandemic.

Asian markets and US futures retreated from Thursday’s morning losses after Chinese exports for April were stronger than expected. The improved economic activity in China indicated a quicker recovery from its pandemic lockdowns which could eventually support the global growth in the long term.

Coronavirus Update:

Global cases: More than 3.74 million
Global deaths: At least 263,000
Most cases reported: United States (1,227,430), Spain (220,325), Italy (214,457), United Kingdom (202,356), France (174,224).

Forex Market:

The EUR/USD has lost more than 300 pips since the start of May, on weaker Eurozone’s manufacturing and services activity while unemployment is rising.

The common currency broke below the 1.08 support level in Thursday morning following drop in German March Industrial production of –9.2% which was higher than expected of –7.4%.

Furthermore, the common currency has been weaker since the decision of Germany’s highest court on Tuesday, which gave the European Central Bank three months to justify purchases under its bond-buying program or lose the Bundesbank’s participation in one of its main stimulus schemes.

Safe-haven currencies as the US dollar and the Japanese Yen were stronger against major peers on risk aversion sentiment after weaker unemployment and manufacturing data across the world.

Market Reaction:

US stock markets were mixed on Wednesday as both Dow Jones and S&P indices settled lower by 0.8% on weaker economic data.

However, the Nasdaq Composite was the only major index who finished in positive territory, posting 0.5% gains, as the shares of technology giants such as Amazon, Netflix, Apple and Microsoft extended their recent gains on prospects of reopening the global economies.

US futures were higher this morning on improved risk sentiment, where Nasdaq Composite implying an opening near 9.030 points, up 0.70%. Investors await the latest US jobless claims data later today, and the monthly Non-Farm Payroll figures on Friday.

Chinese Trade data:

Asian markets were slightly higher on Thursday morning trade as China’s exports rose 3.5% in April, beating the expectations for a fall of 15%, mainly due to the higher exports of medical products in the rest of the world.

In addition, Chinese imports fell 14%, slightly higher than market expectation for a fall of 11%. In March, China’s exports fell 6.6% from a year ago, while imports slipped 0.9% in the same month.

Crude Oil:

Crude oil lost 4% on Wednesday, mainly on profit taking trades, breaking a five-session winning streak. WTI crude oil price settled at $24 while Brent crude finished the day lower at $29.70.

Both crude oil contracts have gained more than 50% since the start of May on hopes of improving fuel demand outlook as more global economies reopen, together with more supply cuts from Shale oil producers.

The U.S Energy Information Administration confirmed yesterday on its report that US production declined by 200.000 barrels per day to 11.9 million bpd for the week ended May 1st. Furthermore, EIA reported smaller than expected US crude stockpiles and Gasoline inventories, an indication that the demand for driving-related fuels has started picking up.

Economic Calendar for May 07, 2020 (GMT+ 3:00):

Morning Briefing: Euro fell on court decision while Crude oil surged 20% on improved fundamentals

Posted on May 6, 2020May 27, 2020 by Vrasidas Neofytou

The Euro currency weakened across the board on Tuesday after the German constitutional court challenged German participation in Europe’s stimulus program. Crude oil prices surged by 20% yesterday on optimism around ongoing supply cuts and a recovery in demand, as global economies reopen.

Coronavirus Update:

Global cases: More than 3.65 million
Global deaths: More than 256,800
Most cases reported: United States (over 1.2 million), Spain (over 219,300), Italy (over 213,000), United Kingdom (over 196,200), France (over 170,600)

Forex Market:

Germany’s Constitutional court stated that some parts of the ECB QE program are not supported by EU treaties, giving ECB three months to clean up its 2.7 trillion-euro asset purchase program. In addition, the court ruled that the Bundesbank must stop buying government bonds if the European Central Bank cannot prove those purchases are needed.

EUR/USD dropped to a near one-week low of $1.082 while EUR/JPY fell to three-years low of 115-yen level. The German court decision puts ECB under heavy pressure and it would be a significant test for the future of the common currency and even for the Eurozone’s project.

The pandemic’s heavier toll on indebted Italy and Spain, compared with Germany, has revived tension between wealthy northern and poorer southern European member states — leaving politicians divided and the ECB to do the heavy lifting.

However, the court’s decision will not apply to the ECB’s latest pandemic-fighting program, a 750 billion-euro scheme to prop up the economy.

The Japanese Yen and the US dollar were stronger across the board on safety flows after the weakness of the Euro currency and the ongoing worries over trade tension.

The DXY-dollar index climbed near 100 before stabilized at 99.80 level, while the Japanese Yen strengthened against the US dollar reaching the 106.2 level.

Crude Oil:

Crude oil prices surged by 20% on Tuesday on improved energy fundamentals. The energy investors have become more optimistic on the synchronised OPEC+ supply cuts and the ongoing production cuts from high-cost oil producers in US and Canada.

The supply cuts combined with the improving oil demand outlook, particularly for gasoline, have helped oil prices to recover from their multi-year lows.

The WTI price settled near $25 per barrel, up 20% for the day, while Brent crude finished the day near the $31 level, up by 14%, posting their fifth consecutive positive session. Overall, both contracts have managed to double their values since they bottomed at the end of April.

Global Equities:

US stock markets rose 1% on Tuesday on hopes for reopening the US economy after the pandemic. However, the indices closed well off session highs, cutting their gains in the final hour of trading after Federal Reserve Vice Chair Richard Clarida warned that economic data would get much worse before getting better.

*Fig.3: Dow Jones index, 30-minutes chart*

Dow Jones index settled at 23.883, or 0.56% higher, S&P 500 at 2.868 or 0.90% higher while the Nasdaq index closed much higher at 8.809 or 1.15% on advanced tech shares.

US futures have recovered some losses this morning, implying an opening near 24.000 for Dow Jones index or up 0.5%.

Asian markets were higher on Wednesday morning following the US overnight gains despite the worries over US -China tensions. Kospi and Hang Seng led the gains with 1.5% while the Chinese indices were flat on their return from a long holiday.

Economic Calendar for May 06, 2020 (GMT+ 3:00):