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Research Market strategy
by Swissquote Analysts
Daily Market Brief

Equities up on business reopening prospects, oil down.

1

Equities up on business reopening prospects, oil down.

By Ipek Ozkardeskaya

Friday’s jobs data in the US was catastrophic with more than 20 million jobs lost during April, but in line with market expectations, so the market mood wasn’t shaken by the ugly number. The US equities closed last week on a positive note. The Dow rallied 1.91%, as S&P500 (+1.69%) and Nasdaq (+1.58%) recorded decent gains.

Asian stock markets kicked ff the week on a cautious positive note, as well, on increased prospects of business reopening and economy gaining back some pace.

Boris Johnson announced the relaxation of some measures in the UK and the government will provide more details on Monday regarding how to make their working environment secure. Johnson wants construction and manufacturing to gradually get back to work, while shops will stay closed until June 1st. So, the UK’s service-heavy economy will remain under a certain pressure for a couple of more weeks. But again, the worst recession in centuries is already priced in the market and won’t cause additional collateral damage.

The main risk to business reopening is a pickup in new cases. Hence, investors will be carefully watching if the contagion curve remains on a descending path. An uptick will likely cause a second wave of halt in activities and hammer the market sentiment. For now, hope dominates.

Nikkei (+1.46%) and the ASX 200 (+1.55%) advanced on Monday, as Shanghai’s Composite (+0.13%) and Hang Seng (+1.97%) gained after the People’s Bank of China (PBoC) announced over the weekend ‘more powerful policies’ to fight unprecedented economic challenges follow the Covid-led slaughter in the economy. US and Chinese officials will restart negotiations. According to the latest news, both sides made a joint statement that there has been a good progress regarding the phase-one agreement. China probably didn’t have the opportunity to boost the US farm product purchases as it was fighting for its own life, but Chinese officials will certainly do whatever they can to stay in good terms with the US. With heavy recession knocking on everybody’s door, both economies have great interest in bettering their trade relationship. Of course, Trump risks prevail, but investors remain optimist that the US and Chinese leaders won’t further hammer an already butchered global economy.

Activity in FTSE (+0.84%) and DAX (+0.83%) futures hint at a positive start on Monday. The FTSE 100 is preparing to have a grip on the 6000 mark.

The US dollar index steadies below the 100 mark as an indication that the global risk sentiment hasn’t been shaken by the latest employment figures in the US.

The USDJPY is ready take over the 107-resistance. Gold remains close to the $1700 per oz.

The euro and the pound trade near their weekly averages. The EURUSD fluctuated in a tight range of 1.0820/1.0850 in Asia. Due today, the Italian industrial production should confirm a 20% decline in March, but the market appears to be anesthetized against bad economic data, hence figures will certainly not the change the course of the euro. We expect to see firm offers above the 1.09 mark and a solid resistance near 1.10 as worries regarding frictions between the German court and the European Central Bank (ECB) will likely limit the appetite in the single currency. The latest CFTC data confirms that investors cut their long speculative euro positions last week and given the solid buildup in long euro positions since March, there is room for further unwind in euro longs.

Cable could make another attempt on the 1.25 offers, however, the pound should encounter more resistance into the 100 and 200-day moving averages at 1.2645 and 1.2740 respectively. Appetite in sterling will likely remain until Wednesday, when March industrial and manufacturing production figures and the first quarter GDP will give a hint on the extent of the coronavirus carnage.

WTI is faced with decent offers above the $25 per barrel. Investors could be tempted to realize profits following last week’s recovery and walk away, given that the downside risks will arise as the rollover date for June contracts approach.

 
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