President Trump’s turnaround on COVID-19’s stance and broad-based caution results in Q2 of 2020 starting on a clear dovish note.
Summary: The global equity market saw major indices and key equities close in the first quarter of 2020 on a disappointing note. The trading session today saw major indices and key equities across Asian and European markets trade on a clear dovish note over data and Trump comment driven cues.
US President Trump, who had so far sounded optimistic about the outbreak prevention and the impact of COVID-19, trying to hint that he had things under control until recently took on completely opposite tone during his latest comments when he warned that the US is likely to face hundreds of thousands of US citizens falling victim to COVID-19 in next two weeks. This, along with disappointing macro data in Asia, caused major indices to face sharp declines.
Dovish cues from the USA and Asian markets pressured European indices and equities into a subdued opening with further bearish pressure piling up over continued escalation of cautious tone in the European market. But equities and indices got the price momentum under control and took on consolidative note following mixed macro data outcome in European markets.
Precious Metals: Rare metals are trading range-bound with slight positive bias as disappointing data in Asian markets and President Trump’s comments warning about COVID-19 victim count escalation caused fears of global economic recession to escalate. However, the price of gold fell below $1600 handle as reports hinted at Russia changing its status from bullion buyer to seller.
Crude Oil: Crude oil price continues to trade range-bound near $20-$21per barrel as glut scenario outlook continues to escalate with each passing day. As COVID-19 woes and Russia-Saudi Arabia price war-affected demand cues further, crude oil price recorded the worst quarterly decline in history to date. US API weekly stockpile buildup added further woes while concerns that Saudi Arabia will boost production and output starting today also weighed down crude oil bulls.
DXY: The USD index has managed to move above the mid-99 handle today. But that shouldn’t be viewed as a major change in its global price dynamics and strength, given the fact that this move was influenced by Trump’s comments on COVID-19 victim count escalation, which drove safe-haven demand. The impact from the US government and Federal Reserve stimulus measures still show visible effect, causing USD to neither decline not move up and gain strong foothold around the 99 handle in the immediate and foreseeable future.
On The Lookout: As COVID-19 pandemic driven cues continues to affect financial markets, major analysts from across the globe fear prolonged recession ahead. Trump’s comments hinting at the possibility of victim count escalating and ongoing crude oil price war amidst declining demand and increasing US stockpile also added strength to investors’ concerns.
Following US President Trump’s comments earlier this week, US Energy secretary Dan Brouillette seems to have spoken to his Russian counterpart Mr. Alexander Novak during which both parties seem to have discussed the slump in global oil markets and efforts required to prevent further decline. However, no concrete measures seem to have been agreed upon at the moment, aside from reports that both nations’ representatives are likely to hold future discussions with other major oil producers for which timeline hasn’t been specified at the moment.
API weekly crude oil stockpile data that hit the market yesterday showed a large buildup in the stockpile, reaching more than 10 million barrels as lockdown measures greatly affected demand and consumption in US markets. While WTI continues to consolidate around $20 handle Brent has declined as far as $21 per barrel from $26 per barrel earlier this week.
On the Economic calendar release front, the US calendar is set to see the release of ADP Non-Farm Employment Change, ISM Manufacturing Employment/Prices/PMI, and EIA weekly Crude oil inventory data.
Trading Perspective: In the forex market, major currencies display clear dovish bias on a broad-based spike in caution sentiment causing some level of decline but firm USD and lack of major update to create a shift in directional bias helped keep declines in check. Wall Street is set to see major indices and equities open on clear gap down move over increased risk aversion on cues from international market and impact from President Trump’s COVID-19 victim count.
EUR/USD: The pair continues to display consolidative price action within familiar price levels. Euro lacked the strength to make rebound on mixed macro data while USD remains firm despite the spike in safe-haven demand on Trump’s comments. Traders now await US data for short term profit opportunities.
GBP/USD: The pair is trading with clear positive directional bias as GBP remains supported by better than expected manufacturing PMI outcome. But firm USD underpinned by broad-based risk aversion on Trump’s comments kept gains in check resulting in gains capped below the 1.245 handle. Traders now await US data for short term profit opportunities.
USD/CAD: The pair is moving with clear directional bias in favor of US Greenback as USD rides momentum influenced by declining crude oil price action. The buildup of global crude oil inventory stockpile affects the strength of commodity-linked currency Canadian Loonie while broad-based risk aversion underpins USD. The pair is now moving steadily above 1.42 handle while traders await US macro data for short term profit opportunities.
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