Risk appetite is less-than-ideal as governments roll out new restriction measures against the third wave of Covid contamination. Delay in business reopening also means delay in economic recovery for at least another month, and economies struggle finding fuel to reach the end of a long tunnel. To make things worse, the headache regarding the AstraZeneca vaccine continues, on rumours that the latest results published in the US and showing how effective the vaccine is, could be outdated.
Pfizer, on the other hand, is working on a Covid pill, which could be taken at the first signs of contamination and help preventing the infection from becoming serious. That could be a game changer as says the company’s Chief Scientific Officer.
But for now, world is stuck with vaccine shortages, outdated test results from AstraZeneca that shakes the general trust and the third wave of contamination knocking at the door.
Oil remains under the pressure of a delayed recovery. WTI crude extends losses below the $60 per barrel. The price supportive factors are either rare, or temporary. Plenty of supply and prospects of a delayed pick up in global demand should continue weighing on oil prices in the foreseeable future. Lately, the toppish formation in oil prices dashed hopes of seeing the price of a barrel near the $100 level. There is stronger case for a further downside correction in the oil markets. The next plausible target for the oil bears is $52 per barrel, the 100-day moving average.
Under these circumstances, today’s PMI figures for March will mean little. Soft figures will continue weighing on prospects of economic recovery, while strong figures will likely be temporary as the economic activity should take another hit from the latest lockdown measures in many countries.
On the policy front, the Fed head Jerome Powell reiterated at his testimony before the House yesterday that the inflation won’t explode, and the rise in inflation, if any, won’t last long enough to compromise the Fed’s average 2% inflation target and demand an early policy tightening.
In all cases, practice makes perfect. It appears that there is a correlation between the number of times Jerome Powell repeats that investors should not worry about inflation and the decreasing investors anxiety. The US 10-year yield is below 1.60%. The US dollar remains strong, but should soften if the risk appetite improves.
As we are snapping back to the Covid reality, the technology stocks could benefit from another leg higher. As such, Nasdaq futures outperformed in Asia, hinting that investors could return to their tech darlings for at least another record push, before the reflation theme comes back to the headlines.
The EURUSD slipped below the 200-day moving average for the first time since May, mostly fueled by a broadly stronger US dollar. Yet, prospects of delayed recovery, and some relaxation in the US yields could encourage some dip-buying approaching the 1.18 mark in the short run. Medium to long tern trend remains negative, however, with the 50-day moving average preparing to cross the 100-day moving average to the downside, hinting that a death cross formation should follow within a week or two.