Global financial markets dropped 2% on Wednesday on concerns over a second pandemic wave and the potential recovery of global economies. The sell-off in markets came as Federal Reserve chairman Powell warned that the “path ahead is both highly uncertain and subject to significant downside risks”.

Coronavirus Update:

Global cases: More than 4.3 million
Global deaths: More than 296,600
Most cases reported: United States (over 1.38 million), Russia (over 242,200), United Kingdom (over 230,900), Spain (over 228,600), Italy (over 222,100).

Market Reaction:

US markets 2% lower after Fed’s Powell warning

US stock markets finished in red on Wednesday for a third day in row on a general risk aversion. Dow Jones lost 516 points or 2.1% while the S&P 500 and Nasdaq Composite finished lower by 1.8% and 1.6%.

The Dow Jones index lost almost 1.500 points or 6% since the start of the week as investors moved away from risky stocks and into the safety of bonds and the US dollar.

Asian markets fell 1% on fears for a second pandemic wave

Asian markets fell 1% this morning following the overnight negative sentiment from Wall Street. Investors fear for a second pandemic wave in Asia, after fresh outbreaks in South Korea, while China has re-imposed movement restrictions near its borders with North Korea and Russia.

Crude oil dropped 2% despite drawdown in oil inventories

WTI and Brent crude oil prices dropped 2% at $26 and $29.30 per barrel as a second wave of infections would hurt the demand for fuels.

The oil price fell even after the first drawdown in US oil inventories after 4 months. The U.S. Energy Information Administration’s reported a surprise drop in crude stockpiles by 745k barrels for last week at a key storage hub in Cushing, Oklahoma, despite analysts’ consensus for a 4.1m-barrel increase. In addition, EIA reported a larger-than-expected drawdown in gasoline on higher driving demand as the US economy reopens.

Cushing, which is the delivery point for WTI, had reached 80% of its capacity, as producers find themselves with fewer places to store oil.

Safe havens rose near monthly highs

Gold price climbed near monthly highs of $1.720/oz on safe-haven demand and after Powell signalled more stimulus plans to support the US economy from the pandemic. Precious metals tend to benefit from stimulus measures as it is often seen as a hedge against inflation and currency devaluation.

US treasuries rose yesterday after the Fed’s warnings of the US economic outlook, sending investors to the safety of US government debt. The yield on the benchmark 10-year Treasury note fell to 0.64%, while the yield on the 30-year Treasury bond was also down at 1.34%. Yields move inversely to prices.

Forex Market: US dollar stronger across the board

US dollar was stronger across the board yesterday on safety flows and after Powell talked down the prospect of negative interest rates in the United States.

The DXY-dollar’s index extended gains above the 100 key level, mainly on gains against the Euro and Sterling, while it was weaker against safe havens such as the Japanese Yen and Swiss Franc.

In addition, the greenback was stronger against growth-related currencies such as the Australian and New Zealand dollars and against commodity-related currencies such as the Canadian dollar and Mexican Peso.

Economic Calendar for May 14, 2020 (GMT+ 3:00):

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):

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.

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):

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):