As far as European equity markets were concerned, yesterday was a day of two halves.
Stocks started out strong on hopes the Trump administration would provide assistance to the US workforce to alleviate some of the pressure caused by the coronavirus. On Monday night, the US president said he was in favour of cutting payrolls tax, in addition to providing assistance for workers who get paid on an hourly basis.
The mood was bullish in Europe in the morning, but the optimism started to fade in the afternoon. The indices started to hand back some of their gains in the latter half of the session and by the close of play, all the major equity benchmarks in Europe were in the red. The aggressive move lower towards the end of the day was largely because of the US indices sell-off.
It was reported that President Trump pitched the idea of zero payrolls tax for the rest of the year. The US government has yet to reveal any new fiscal policies to try and help with the crisis, but the fact the Trump administration is making an effort was enough to boost sentiment. The Dow Jones and the S&P 500 finished more than 4.8% up last night.
Overnight, renewed fears about the health crisis hit sentiment. The number of confirmed cases globally has grown to at least 113,851. The Australian market underperformed after the government revealed an AUD$2.4 billion health fund – the action was seen as a sign of weakness. The lack of progress on the US stimulus front hurt equity sentiment too. European markets are being called lower.
Like other markets, oil has seen its fair share of volatility. The brutal decline that was witnessed on Monday was followed by a huge rebound yesterday. The rift between Saudi Arabia and Russia might not be as bad as initially thought, as Russia did not rule out entering into talks with OPEC. There is no guarantee the relationship between Russia and the Saudis will be patched up anytime soon, but the reaction from Russia triggered buying.
Yesterday, the US dollar index rebounded as it made up for lost ground in the wake of Monday’s sizeable fall. The push higher in the greenback hit EUR/USD as well as GBP/USD. The turnaround in the US dollar was brought about by the belief that the Trump administration will introduce measures to tackle the health situation. The Fed will announce its interest rate decision next week and traders are pricing in an 84% chance of a 0.5% cut in rates.
Countries in the west are taking action against the coronavirus. Italy is going down the quarantine route. Yesterday, President Macron said that EU member states shouldn’t be held back by the budget constraints of Brussels when it comes to allocating funds to tackle the health crisis.
The UK will publish a raft of economic updates at 9.30am (UK time) The estimate for GDP for the three months until January is tipped to be 0.1%. Industrial output, manufacturing output and constructions output are expected to be 0.3%, 0.2% and 0.0% respectively. The goods trade balance is forecast to be a £7 billion deficit.
Rishi Sunak, the Chancellor of the Exchequer, will reveal the budget today, and it should commence around 12.30pm (UK time). In light of the health crisis, it will be tricky to make economic projections. The Conservative party cleaned up in traditional Labour areas in the December election so Mr Sunak might be inclined to ramp up investment in areas such as the Midlands, the north of England and Wales. Ultra low gilt yields could provide an opportunity for big infrastructure projects. The Chancellor might tackle business rates in order to assist the struggling high street.
At 12.30pm (UK time) the US CPI reading will be posted, and the consensus estimate is 2.2% which would be a fall from 2.5% in the previous report. The core CPI reading is tipped to hold steady at 2.3%.
The EIA report is tipped to show that US oil inventories grew by 2.4 million barrels, while gasoline inventories are expected to fall by 2.4 million barrels. The update will be announced at 2.30pm (UK time).
EUR/USD – yesterday’s candle has the potential to be a daily bearish reversal, and a further move lower might see it target 1 1200. Seeing as it rebounded today, the wider bullish move might continue, it could target 1.1570.
GBP/USD – turned sharply lower yesterday and while it holds below the 1.3000 mark, it might lose further ground. 1.2726 might act as support. A move above the 1.3200 area might put 1.3284 on the radar.
EUR/GBP – rallied from mid-February and while it holds above the 100-day moving average at 0.8517, the outlook should stay positive, and it might target 0.8786. A move below the 0.8600 zone should bring 0.8517 into play.
USD/JPY – yesterday’s candle has the potential to be a daily bullish reversal. If the market continues to rise, it might target the 200-day moving average at 108.64. Given the currency pair fell overnight the wider bearish move could continue, it might target 101.19.
FTSE 100 is expected to open 2 points higher at 5,962
DAX 30 is expected to open 31 points higher at 10,506
CAC 40 is expected to open 11 points higher at 4,647
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