Asian equities kicked off the week on a positive note. Stocks in Sydney jumped past 4%, Nikkei gained 2.37% and the Hang Seng added 1.11%. Chinese and Indian markets were closed due to holiday.
The three major US stock indices surged circa 3.30% after closing 1.50% lower on Friday following the gory employment figures that showed the US nonfarm payrolls plummeted by 701’000 in March, giving a hint on how bad the lockdown hit the US economy. And the figures will get worse in the US where the cases have well surpassed those in China, before they get better.
Fiscal aid measures to cover for lost revenues should add up to $2 trillion, increasing the US budget deficit by almost 10% of the GDP, but many expect this number too shoot up to $3.5 trillion, depending on the length and the gravity of the crisis.
Good news is that it appears that the number of cases has started slowing recently. Fatalities in New York eased for the first time on Sunday and death toll in France and Spain, which peaked last week have been falling since then.
Slowing cases and death toll could is expected to give a positive spin to the European stocks on Monday. Activity in FTSE futures (+2.42%) hint at a strong positive start despite the renewed negative pressure on oil prices.
WTI fell 3.25% a barrel on NYMEX, as Saudi and Russia delayed their Monday meeting and rescheduled it for Thursday. Now, it’s probably a matter of time before the OPEC+ agrees on a sizeable production cut of around 10 million barrels per day to curtail the historical fall in oil prices. Saudi has the willpower to clinch a deal, while Russia desperately needs it at this point. Both countries also want to see the US joining in, but Donald Trump is torn between his distaste of OPEC raising prices artificially and hurting American drivers, and the cheap oil’s short-term negative impact on equity prices. Hence despite Trump’s matchmaking between Saudi and Russia, we may not see the US being part of a deal involving OPEC. From a price perspective, WTI crude will likely continue testing the $30 offers on mounting hopes of seeing a lower-production deal sealed. Price retreats are expected to remain limited near $25 pb as long as there is hope. If anything goes wrong, however, we could see a renewed dip to the $20 mark. Net speculative long positions in WTI recorded a slight decrease last week hinting that the market has potential to absorb further long bets on the run up to the OPEC+ meeting.
In the currency markets, the shock on US jobs figures fueled USD purchases on Friday, but the greenback is softer on a slightly improved risk appetite this morning.
The EURUSD traded a touch above the 1.08 handle. The latest CFTC data showed that the net speculative net positions in euro doubled up over the past two weeks, as the single currency rallied past the 1.10 mark. The net euro bets have been positive since the past two weeks only, following a long series of short bets since September 2018. The positive reversal in the direction of bets is often a sign of a medium-term recovery. However, soft economic data remains a major threat to the euro recovery. The German factory orders fell 1.4% m-o-m in February versus -2.4% expected by analysts and 5.5% printed a month earlier. The data will likely get worse in the coming months before it gets better, but better-than-expected figures should give a sigh of relief to investors as the impact of the coronavirus outbreak begins losing steam.
Meanwhile, the coronavirus crisis is a strong test for the European integrity. It will be interesting to see how the EU, which has a history of fiscal austerity, will deal with surging government debt, especially in most indebted peripheral regions including Italy and Spain.
Cable, on the other hand, consolidates near the 1.22 handle. Due today, the UK’s construction PMI may have fallen below the 44 level expected by analysts in March. Any weakness in data should encourage a deeper downside correction in sterling toward the $1.20 mark against the US dollar. On the Brexit deck, there is no progress at all. The coronavirus crisis has wiped out all Brexit discussions, meaning that a delay in the Brexit deadline is now a no brainer. But the separation from the EU is making the handling of the Covid-19 crisis a chunk harder for the UK, which should see a deeper economic recession in the coming quarters than otherwise.