Vaccine cues, crude oil price gain, and improved economic outlook amid major economic reopening from lockdown keeps risk sentiment fundamentally supported.
Summary: The global equity market this week was off to a rocky start in Asian market hours. While sentiment was sour over dovish economic data from Japan, the sentiment slowly started to improve across various other international markets. Singapore and Chinese markets were among those that posted solid gains as major global economies are opening up today following lockdown, which has caused investors to price in market rebalancing possibilities given support from various governments and central banks in the form of stimulus measures.
In the European market, major indices that logged their worst week since mid-March had a field day today as regulators lifted the ban of short selling activity. Further, the soaring mining sector, industrial and oil-based shares greatly added momentum to positive price action.
Precious Metals: Both Gold and Silver are continuing to enjoy a positive price action despite prevalent risk-on market sentiment as Fed Chair Jerome Powell made it clear that there are no plans for negative interest rate scenario. He also stated that there are other plans to keep the economy supported, causing bets for rates to remain low for a long duration to spike and fuelling demand for precious metals.
Crude Oil: Crude oil price is trading positive in the global mark\et with both Brent and WTI indices and futures seeing price spike by $1 per barrel. The demand outlook greatly improved given reopening of major economies from across the globe, which combined with OPEC+ supply reduction and additional cut back from Middle Eastern producers greatly helped decrease glut outlook.
DXY: The US Dollar Index remains firmly rooted to the 100 handle but shows a clear dovish outlook as risk sentiment has improved in the market considerably supported by various factors. Easing lockdown measures, economic rebalancing outlook, vaccine cues have greatly aided risk sentiment. Still, Powell’s comments on US economic recovery and policy rate decision keep USD underpinned against its global rivals.
On The Lookout: Policy decisions from major global central banks are in focus following outlook updates from Bank of England and US Federal Reserve. US Fed Chair Jerome Powell said in his most recent CBS interview that the US economy is expected to begin steady recovery in the second half of this year,. Still, full recovery is unlikely until the end of 2021. This, along with his comments stating that there are various plans to protect the economy, but their outlook doesn’t show the necessity for negative interest rate, making it clear such an outcome is not possible in the immediate and near future. This has greatly affected investor sentiment, given the Fed’s repeated attempts to request more stimulus measures from the US Government.
On the other hand, given their economic outlook considering Brexit and COVID-19 implications, BOE policymakers have displayed a stance hinting at the possibility of negative rates. Fed Chair Powell’s comment has cemented the possibility of US rates staying low for a relatively long term in real-time market activity.
Meanwhile, the spat between China and the US continues to grow as China has blacklisted several US brands. At the same time, Mr. Peter Navarro, a white house advisor, took another dig at China for being the seed for a current global pandemic. Mr. Navarro blamed China for allowing outbound flights while concealing the extent & impact of the COVID-19 virus in the country. On the release front, the US calendar is silent for the day while Canadian markets are closed on account of Victoria day celebrations, which suggest there will be no data-led price action in North American market hours today.
Trading Perspective: US futures trading in the international market was positive over the hopes of vaccine cues. Expectations of market rebalancing itself given relaxed lockdown measures and stimulus package from government and improved crude oil price also aided market bulls. Wall Street is expected to open positive and trade on bullish note across the day, but gains will be limited as investors remain cautious and wait for covid-19 data from across the globe to ensure the spread has been contained. Any news of the virus outbreak showing a second wave will cause markets to tumble down once again.
EUR/USD: The pair continues to trade on positive note riding broad-based risk sentiment led by vaccine cues. But price remains trapped within 1.08 to 1.0880 handle as firm USD and lack of fundamental strength to build a breakout rally keep EURO bulls under pressure. Traders await updates from the US for short term profit opportunities.
GBP/USD: The pair is trading with positive momentum, but its prospects for gains were capped over an update from BOE policymakers hinting at the possibility of negative interest rates. Slightly weaker but firm USD and Brexit woes also add pressure, but cues from vaccine test trial data provide enough strength for short term positive price rally.
USD/CAD: The pair fell below 1.40 handle yet again given considerable gains posted by crude oil futures and crude oil-based stocks which underpin commodity-backed currency Loonie. Vaccine cues and improved economic outlook also weighed down USD causing pair to touch intra-day lows of 1.3982. Traders now await updates from the USA for short term profit opportunities.
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