Market Briefing: Euro & global equities rallied on ECB stimulus plan

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Vrasidas Neofytou
Head of Investment Research

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The Euro currency and global stock markets rally on Friday, after the European Central Bank increased the size of its Pandemic Emergency Purchase Program by a larger-than-expected 600 billion euros, to support the weaker economies in the Eurozone.

Coronavirus Update:

Global cases: More than 6.6 million
Global deaths: More than 389,620
U.S. cases: More than 1.8 million
U.S. deaths: More than 108,208

Forex Market:

The EUR/USD pair broke above $1.135 on Thursday, its highest level since early March, after the decision of ECB to increase its emergency bond purchase scheme by 600 billion euros to 1.35 trillion and extend it to mid-2021. Markets had expected an expansion of 500 billion euros.

Fig.01: EURUSD pair, Daily chart

The Euro’s gains supported appetite for riskier currencies such as Australian and New Zealand dollars which hit fresh multi-month highs against US dollar at $0.70 and $0.62 respectively.

The risk-on mood has sent investors away from safe-haven currencies US dollar, Japanese Yen and Swiss Franc. The DXY-US dollar’s index against a basket of currencies dropped at 96.50 on Friday, its lowest in nearly three months, on improved risk sentiment and stock market rally.

Market Reaction:

The US markets fell on Thursday on higher than expected weekly jobless claims. Dow Jones index closed at 26.281, up 0.1% while S&P 500 and Nasdaq Composite finished the day with 0.3% and 0.7% losses.

The US Labor Department announced that 1.877 million Americans filed for unemployment benefits last week, topping a Dow Jones estimate of 1.775 million. Continuing jobless claims rose sharply, nearly reaching 21.5 million.

Fig.02: Dow Jones index, Daily chart

However, US futures recovered on Friday morning, gaining 1.2%, implying an opening at 26.640 as investors cheered the ECB stimulus plans. In addition, the market is looking ahead of Friday’s Non-Farm Payrolls data and US Unemployment rate, which are expected to show further improvement in the U.S. jobs market in May.

Asian markets finished the week higher, extending their strong weekly gains on improved Chinese economic data and de-escalation of trade tensions over Hong Kong status. Kospi and Hang Seng led the gains with 1.5% while Nikkei and Nifty followed with 1% gains.

Crude oil:

Crude oil prices rose 2% this morning as investors awaited the decision from producers of OPEC+ alliance, on whether to extend the current output cuts of 9.70 million barrels per day until end of July.

Brent crude price broke above $40 per barrel level, while WTI price trades near $38, their highest since early March.

Fig.03: Brent crude oil, Daily chart

The members of OPEC+ alliance will have a video-conference call on June 06, where Saudi Arabia and Russia, two of the world's biggest oil producers, want to extend the May-June output cuts of 9.7 million barrels per day into July.

The OPEC+ meeting had been expected to take place on June 4 but was delayed amid talk about poor compliance with commitments to cut supply by Iraq and Nigeria.

Economic Calendar for June 05, 2020 (GMT+ 3:00):

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