Equities continued trading in the green yesterday, as the FOMC announced another round of stimulus measures, overshadowing another surge in initial jobless claims. That said, optimism eased somewhat after the OPEC+ decision was seen as not enough to offset the tumble in energy demand due to the coronavirus outbreak. Oil prices and the oil-related currencies slid as well.
The dollar continued trading lower against the other G10 currencies on Thursday and during the Asian morning Friday. It lost the most ground versus AUD, SEK, NZD, CHF and EUR in that order, while it underperformed the least against NOK and CAD.
The strengthening of the risk-linked currencies Aussie and Kiwi points to another round of risk appetite, but the fact that the Swiss franc was the fourth winner in line suggests otherwise. Thus, we will turn our gaze to the equity world for getting a clearer picture with regards to the broader market sentiment. There, EU indices closed in the green, perhaps as France’s new coronavirus deaths eased and Spain’s new infections slowed, or it could be due to Eurogroup chairman Mario Centeno saying that EU finance ministers are close to overcoming differences over a rescue package. Sentiment was boosted further near the EU close after the FOMC announced another round of stimulus, with investors shrugging off another 6.61mn jump in the US initial jobless claims. Under this new USD 2.3 trillion program, the Fed will work with commercial banks in order to offer four-year loans to small businesses and directly buy bonds of states and more populous countries and cities.
The relatively upbeat morale rolled over into the US session, with all three of Wall Street’s main indices opening higher. That said, although they closed in positive territories, they came off their highs following the outcome of the OPEC+ video conference meeting. The group decided to cut output by 10 million barrels per day (bpd), with another 5 million suggested to come from nations outside the group, including the United States. They also said that a final agreement was dependent on Mexico getting on board after the nation appeared reluctant to proceed with the asked cuts.
Oil prices tumbled on the announcement, perhaps on a “sell the fact” response, as such cuts were already priced in. Remember last week, both Brent and WTI skyrocketed on rumors that Saudi Arabia and Russia will agree on a 10-15mn output reduction. It could also be that such cuts were not seen enough to offset the 30 million bpd tumble in global fuel demand due to the coronavirus outbreak, or it could be that investors stayed nervous on the condition of other producers joining in. US officials have already said that US production will fall on its own in two years’ time, but they have not committed to any cuts yet.
Maybe that was the reason behind the mixed results in Asian equities this morning. Although Hong Kong’s Hang Seng and South Korea’s KOSPI are up 1.38% and 1.31% respectively, Japan’s Nikkei closed virtually unchanged, while China’s Shanghai Composite was down 0.96%. This may have also prevented the oil-related currencies CAD and NOK to perform as good as the other commodity-linked currencies, AUD and NZD. The Canadian dollar may have also felt the heat of Canada’s disappointing jobs data for March.
Yesterday’s OPEC+ talks will be followed by another call today, between G20 energy ministers, and it remains to be seen whether other producers, outside the OPEC+ group, will be willing to contribute with an extra 5mn bpd reduction. If so, oil prices may experience a relief bounce, but this is unlikely to result in a trend reversal in our view. After all, oil traders showed their dissatisfaction over the new deal yesterday, pushing the “black gold” lower. If indeed the new cuts are not enough to support prices, we wouldn’t be surprised if we see WTI and Brent trading back below the 20.00 and 25.00 marks again soon.
Back to the virus saga and our view over it, we stick to our guns that even if market sentiment remains supported for a while more due to the FOMC’s new stimulus measures, we would be reluctant to trust a long-lasting recovery. Yesterday, although infected cases around the globe slowed somewhat, deaths accelerated close to their daily record. Thus, we believe that it is too early to call for a peak in the pace of the virus spreading. Just a day of new records in cases and deaths may be enough to spark fresh fears and prompt investors to abandon risk-linked assets in favor of safe-havens. Even if we have already hit that peak, we expect deaths to start slowing with a lag compared to the cases, which makes us believe that the lockdown measures should be extended for a while more, if indeed governments worldwide want to contain the fast-spreading virus. What’s more, as we noted recently, the economic wounds could well drag more than previously anticipated. Even if we get a free movement permission in the next months, many people may still be hesitant to get out of their homes and start spending.
Yesterday, NZD/USD managed to climb above the 0.6069 barrier, which is the high of March 27th, and also to overcome the 200 EMA on the 4-hour chart. At the same time, the pair continues to balance above its short-term upside support line drawn from the low of April 6th. From the very short-term perspective, the rate could continue drifting higher, however, let’s not forget that the upside might get limited near a medium-term tentative downside line taken from the high of December 31st.
A further push north could bring the pair closer to the 0.6160 hurdle, which is the high of March 13th. NZD/USD may get held there initially and could even be forced to correct slightly lower. However, if the rate remains above the aforementioned upside line, the bulls might take advantage of small decline and take charge again. We could once again see a test of the 0.6160 barrier, a break of which may send NZD/USD to the 0.6242 level, marked by the low of March 10th. Slightly above that level runs the previously-discussed downside line, which might also provide additional resistance.
Alternatively, if the short-term upside line breaks and the rate falls below the 0.6030 hurdle, which is marked near the highs of March 31st and April 8th, this may spook the bulls from the field temporarily. NZD/USD could then drift to the 0.5940 obstacle, a break of which may set the stage for a test of the 0.5843 level, marked by the current lowest point of April.
WTI oil moved lower yesterday, after the OPEC+ meeting. The commodity initially jumped higher, but was held by the 28.06 barrier, which continues to provide decent resistance from around mid-March. The price then slid and is now sitting slightly below the 20-day SMA of the Bollinger Bands, which could be seen as a bearish indication. That said, for now we will take a neutral stance and wait for a clear break through one of our highlighted areas, in order to consider a further directional move.
If WTI oil moves below its key support zone, between the 19.00 and 20.00 levels, this could attract more sellers into the game, as the move would confirm a forthcoming lower low. We will then aim for the 17.12 hurdle, which is the lowest point of 2001. The commodity could get a hold-up there, however, if the buyers are still nowhere in sight, this might lead to another drop, possibly targeting the 15.61 level, marked by the lowest point of April 1999.
On the other hand, if we eventually see a break of the previously-discussed 28.06 barrier, marked by the highs of March 20th, April 6th and April 9th, this could clear the path to some higher areas. We will then aim for the 30.26 obstacle, a break of which might send the black liquid to the 36.25 level, marked by the high of March 11th. Slightly above that level runs the medium-term downside resistance line taken from the high January 8th.
Today is Good Friday in most nations under our radar and thus, the respective markets will be closed.
With regards to the data, we only get the US CPIs for March. The headline rate is expected to have fallen to +1.6% yoy from +2.3%, while the core rate is anticipated to have ticked down to +2.3% yoy from +2.4%. The case for the headline rate to fall more than the core one is supported by the yoy change in WTI, which slid further into the negative territory. Let’s not forget that the difference between the headline and the core CPIs is volatile items, like energy.
We also have two Fed speakers on today’s agenda: Cleveland President Loretta Mester and Board Governor Randal Quarles.
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