Trump said that he likes a strong dollar, in contrast to the rest of his presidency where he has been calling for a weak dollar. While a strong USD doesn't help equities, he may have worked out that is helps his popularity
Markets looked to be falling away heavily but took stock in Trump's desire to look at a 4th coronavirus bill.
BOC head Poloz was upbeat, saying that the 'best case scenario' was still within reach & that fiscal and monetary response was doing its job.
Gold eventually broke out of some consolidation, though it hasn't made new highs yet, and the market will be watching in the coming days to see if it can capitalise on the move. It's a crowded trade but global QE keeps pushing it higher.
EURO GDP & US RETAIL SALES
Germany GDP (0700) & Eurozone preliminary GDP (1000) are the morning highlights. Although the market knows the data will be terrible, with EURUSD nestling around the 1.08 mark and the weekend ahead, it could be decision time for a breakout and terrible GDP reads could give it a push.
In the afternoon, US Retail Sales (1330) and Michigan Consumer Sentiment (1500) may provide some whipsaw if there is not a full commitment to any Euro sell-off that takes shape.
DOES THE EURO FALL?
The Euro has hit off the 1.08 mark seven times so far this year. A firm break below would surely signal an overall rise of USD, the strength of which has been confined to emerging market currencies over the last few months.
Our momentum tracker has the Euro as a strong sell, though we will be keeping one eye on the mood of the market; at the moment, risk off and USD strength go hand in hand so EURUSD will struggle to go down if the market wants to bounce.
It would have been a kick in the teeth to the 30 million American's who filed for unemployment since March for the month to end near the highs in equities. There is always one ideal time to buy and one ideal time to sell in every month and the 30th April fit the bill, with the major indices giving back much of their gains from the day before and the risk-off mood carrying in to today.
While there are a myriad of reasons for equities to be far lower & the USD a lot higher, there are still some smokescreens to get past - the promise of Gilead and/or any vaccine developments - so there may be one more risk-on move before the economic reality fully sets in.
Looking for a scapegoat, Trump is ramping up the rhetoric against China, with reports he is considering blocking a US investment fund from investing in Chinese equities. On COVID, he is labelling China either 'incompetent,' or as having deliberately let it spread. China is also responding, labelling US Secretary of State Mike Pompeo as an 'enemy of humankind.'
Kim Jong-un of North Korea has now not been seen for weeks. Most likely is that he is suffering from some kind of major illness and we are awaiting to see if he pulls through or not. As discussed, if he passes, this is one of the major flashpoints that Trump and Xi could choose to cross swords on.
It's a quiet session on the data front today, with limited data and US ISM Manufacturing PMI the highlight later at 1500 GMT.
• UST AND USD MOVES SUGGEST RISK OFF CURRENTLY • OIL CLOSES HIGHER AFTER DIPPING TO $10 • THE SINGLE CURRENCY WEAKENS AHEAD OF THE ECB
The Japanese Yen and Australian dollar battled it out for the strongest currency in the US session with the Aussie coming out on top. Equities were down from their highs from the start of the US session as news around the Wholesales Inventories and Trade Balance data showed a widening trade deficit and the largest decline in wholesale inventories since 2009. The data didn’t move the US dollar that much which is in a larger range, but recent price action suggest that 100 is the magnetic level and any move away from that is short lived. The upper bound of the larger range is 100.80 and support for the DXY comes in at 98.40.
US 10-year yields were down as the yen and US Treasuries garnered more favour with traders looking for a risk-off position ahead of the FOMC and ECB meetings. The fiscal support is coming into the markets but there is a lot of bearish sentiment as traders look at the data coming out of Americas corporations and business and see no way around a Depression rather than a short sharp Recession. Today’s announcement that Mitch McConnell has squashed President Trumps ideas of continued fiscal spending, with a stimulus bill based on infrastructure, will show that the financial injection into the markets may not keep the markets buoyed for much longer. The US deficit is $1.3trillion and that is maybe too large a number for the US Senators to stomach as we start to look to November’s elections.
Oil futures traded higher into settlement as we look for a reduction in production from the US to combine with the lowest US imports for a couple of decades. Storage is still a problem with massively reduced demand, but some States are starting to come back to life opening up their economies slowly. Assuming the EIA data shows some significant reduction in production following on from the API 10mln barrels build this week, down from 13.3mln last week. In the latest reports from Petro Logistics there is still massive supply coming out of Saudi Arabia and the UAE ahead of the May production cut brokered by OPEC+ even though there had been talk of Saudi cutting ahead of that date. USDCAD bucked the trend of trading inverse to the Oil futures into the close and looks to the 1.4000 resistance level. If there is a sharp turn in the US dollar or Oil, the 1.4000 level could be an inflection point for the Loonie.
The EURUSD pivoted at the mid-morning session high, failing once again to get to the 1.0900 level. This was mainly driven by the US dollar, but the single currency was weak against the yen, Aussie, and pound also. Cable also fell against the US dollar and the move was more significant due to the lowest level recorded by the CBI distributive trades survey data, which came out this morning.
• SIGNS OF THE PEAK TO COVID-19 EMERGING • RISK ON SENTIMENT GRINDS THE EQUITIES HIGHER • US DOLLAR RANGE BOUND FOR A MONTH – OIL BACK AT LOWS
COVID-19 continues to ravage the world, but signs of a slowdown in infections are starting to emerge as the city of New York Governor Cuomo says the numbers of deaths in the city are falling on a daily basis now and the start of planning for a reopening of the most badly hit city in America begins. The UK’s welcomes back Prime Minister Johnson from his near-death experience and Sterling rose for the day as the daily death tally for the last couple of days is the lowest since March. The World Health Organization maintains the pandemic is far from over, but the markets today took the more optimistic data readings and rallied in the risk markets, whilst the Japanese yen and Bonds came down a bit.
As we go through this earnings season, we are learning more of how badly affected the economies are going to be, especially the USA which has the highest recorded amounts of the coronavirus infections but also the highest number of tests. The S&P500 hit a 6 week high as it punches towards the 3000 level, even though the Dallas Fed’s general business activity index for manufacturing shows a decline greater than that in March’s data release and with analysts’ expectations being that the next months’ worth of data will be just as bad or worse.
The US dollar is in a range spanning a full month now which has kept the US dollar crosses tied in small ranges and also mean reverting with a propensity to spikes on news. The AUDUSD follows the Risk On sentiment today and posted a new weekly high, the 6th since bottoming out in the middle of March. The Aussie is tied closely to the Chinese economy’s health but still managed to rise even though the Chinese Industrial Profits for March were -34.9% year on year. The Bank of Japans negative interest rate of -0.1%, their unlimited buying of JGB’s and increased buying of Japanese corporate bonds meant the AUDJPY was able to print a 0.75% gain today and looks to still be correlated to the US equities markets.
All of the major indices were green today, while the majority of safe have currency crosses which pair the Swissy or yen reflect the risk-on sentiment in the market currently. The economic calendar tomorrow is light as it was today, with the major news releases happening from Wednesday onwards. Traders are keeping their eyes on tweets from President Trump and looking for news to pop this equity rally, as Oil continues to trade lower into the June contract and printed below $14 again.
• US JOB DATA SHOWS JOB DECLINES OVER 10 YEARS • WORLDS PMI’S ARE DOWN • EURUSD SUFFERS AS THE EU LEADERS FAIL TO AGREE
US Jobless Claims hit 26million in 5 weeks as the data out today showed worse than expected numbers, with the 4-week average ~5.7million and with 4.4million more US citizens claiming for unemployment last week. Those out of work now total more than the total job creation since 2010, but the initial reaction was for the US dollar to drop and the equities markets to rise. The bad news out today would have seen the risk markets fall but it wasn’t until the news came out that the Gilead Antiviral drug failed in its first set of trials, that we saw the risk-off moves. Showing that recent bullishness in the equities/risk markets has been ignoring the hard data and rising on the hope of some sort of vaccine and a possible re-start to the largest economies.
The IHS Markit US Factory Activity contracted to the lowest readings in 11 years, which is to be expected when the economy is shut down. Unfortunately, the pessimism is beginning to grow as we now know that a recovery is less likely without a fully operational economy and what we will get is a staggered start when restrictions begin to be lifted. It’s the same around the world with Japan’s PMI at the lowest in survey history with demand being hit. USDJPY is trading in an ever-tightening range and tested the upper and lower bound today in just a couple of hours of trading.
The EURUSD has been trending higher in the run up to the US open but following the London fix there was news out 90 minutes later from the EU leaders that they had agreed on a ‘need’ for a COVID-19 support package and a new budget would be proposed but no agreements could be made. Chancellor Merkel was also non-wavering on her stance against the ‘coronabond’ idea as the way to finance the recovery package, with French President Macron calling for grants rather than loans, something that goes against the German ideal of paying for the recovery in a broader longer-term European budget. The weekly momentum is currently bearish for the single currency and the March lows could be tested.
US-Iran tensions push Oil prices higher which will suit America and Iran equally as they build up the rhetoric. The US is proud to be energy independent and is less likely to cut production but is looking to other major producers to cut and lose market share. Something the Russians said was a reason to walk from the original OPEC+ meeting that led to the price crisis oil now finds itself in. Oil finds itself in quite a tight rising trend this last couple of days as it inches higher towards $20.
The economic calendar was busy all day today with the last of the Tier 1 data being the US New Home Sales for March. These figures also came in worse than expected and fell by -15.4% and the lowest reading for 12 months. These figures are set to get worse as the COVID-19 pandemic continues.
