Oil tumbles as UAE join Saudi Arabia in boosting crude output, Trump’s travel ban on Europe for 30-days and lack of details on testing policy brings forth a fresh wave of risk aversion.
Summary: Global equities take a dovish plunge following a fresh wave of risk aversion led by President Trump’s European travel ban announcement. With the COVID-19 outbreak in European nations turning into a pandemic, making it the biggest playground for the coronavirus outside of China, various countries are taking different measures to prevent the spread of virus outbreak in their territory.
Some of most notable such measures include intensifying lockdown in Italy which shut down all non-essential public life-related commerce such as bars, restaurants, cinemas and beauty parlous, the shutdown of school and universities in Denmark and UK government’s decision to force the rest of English soccer season to be played behind closed doors.
However, the major blow came from US President Trump’s stimulus measures, which saw a grant of low-interest loans to affected companies for up to $50 billion and three months tax holiday to try and fight the impact of the coronavirus outbreak on the US economy. However, what caused an unforeseen impact on risk sentiment was Trump’s decision to enforce a 30-day ban on arrivals of people from Europe in his bid to prevent virus outbreak from incoming tourist activity. However, the travel ban doesn’t seem to include UK & Ireland, which have also suffered from the COVID-19 outbreak.
Precious Metals: Profit booking activity stole a big chunk of gains made by rare metals such as Gold and Silver during Asian market hours today. While gold has recovered from the intra-day decline and is trading flat near mid-$1600 handle, other major rare metals are yet to recover from intra-day declines.
Crude Oil: Price of crude oil futures for both Brent and WTI in the international market declined by nearly 7% – about US$2 per barrel as UAE announced plans for increased output similar to Saudi Arabia. This move floods the market with cheap supply amid decreased demand as price war escalates between OPEC nations and Russia. The blow from Trump’s Europe travel ban also adds pressure to crude oil price action preventing any chance for a sharp rebound in immediate and near future trading sessions.
DXY: The US Dollar index, which measures the strength of US Greenback against six major global currencies, continues to hold firm above $96 handle for now. But the Greenback is suffering from a sharp bout of selling activity as US President Trump enforced a fresh 30-day travel ban on Europe which, along with low sovereign bond yields, keeps USD under considerable dovish pressure.
On The Lookout: Broad market outlook in both risk sentiment and trading activity display a clear risk-averse tone following WHO’s declaration of the ongoing COVID-19 outbreak as a pandemic during a press conference in Geneva yesterday. Various nations continue to take drastic measures, but the COVID-19 outbreak doesn’t show any signs of peaking anytime soon. With escalating victim count and lack of clear testing policy to identify and contain COVID-19 victims in the USA, the bets surrounding rate cut from the Fed continues to escalate in favor of interest rate decision moving towards zero.
Credit rating agencies are starting to revise corporate risk ratings for firms across all sectors as the price of bonds continues to decline amid the coronavirus outbreak. In contrast, many corporates have started to draw on credit lines creating fears of a scenario where investors pull out of products and the global economy entering a recession phase over the virus outbreak.
In the late European session, traders hope ECB to announce measures in the form of monetary and prudential policies in order to support the economy during monthly meetings between governing council members to decide on interest rates later today. There is also a press conference from ECB President Christine Lagarde following the governing council meeting. On the economic calendar release front, the US calendar will see the release of PPI and initial jobless claims in the early North American session.
Trading Perspective: In the forex market, broad-based USD’s weakness helped major global currencies trade range bound with slight positive bias while safe-haven currencies Yen and Swiss Franc continue to enjoy consecutive field days. US futures trading in the international market is seeing sharp decline ahead of Wall Street opening which along with risk-averse cues from Asian and European market suggest Wall Street is likely to see another session of bearish rout across its key indices and risk assets today.
EUR/USD: Despite scaling past the 1.1300 handle earlier in the day, the pair is trading mostly flat, having declined below mid-1.12 handle on broad-based risk aversion. USD’s prevalent weakness helps keep the common currency from suffering a sharp decline. At the same time, traders await ECB stimulus measures update, ECB Lagarde speech, and US PPI data for short term profit opportunity. In case of favorable stimulus measures from ECB, Euro is likely to scale the 1.1300 handle once again.
GBP/USD: The pair is trading with clear dovish bias today with GBP testing an intra-day low of 1.2720 as doubts on BOE and UK government’s stimulus measures to support economic activity amid lack of post Brexit deal with EU. But broad-based USD’s weakness helped the pair trade range-bound below mid-1.27 handle for now. Traders now await US macro data for short term profit opportunities, and in case of worse than expected outcome, GBP bulls will gain a chance to regain hold above the 1.278 handle.
USD/CAD: The pair has managed to scale above 1.38 handle as Crude oil price declined by $2 per barrel in the global market today. With escalating price war surrounding crude oil and increased glut scenario for the quarter ahead, CAD continues to lose ground against US Greenback providing USD bulls with fundamental support to trade on a positive note despite prevalent broad-based sell-off and dovish pressure on USD. Traders now await US macro data for short term profit opportunities.
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