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Stocks rise, dollar slips after Powell leaves door ajar

EQUITIES

Asian equities are pushing higher overnight. China reporting the lowest number of new cases of the coronavirus since January keeps the prospect of a pandemic at bay. China’s CSI 300 is flat today but has risen the prior six days in a row and is up 8% from the lows.

The Dow and S&P 500 notched up record highs, boosted by the approval of the T-Mobile and Sprint merger. Stocks finished higher but ended well off daily peaks in signs of little reticence that the Fed is ‘closely monitoring’ the coronavirus. Our main takeaways from Fed Chair Powell’s testimony to Congress were that 1. Deeming the treasury purchases a success and the word ‘gradual’ in plans to stop using repo operations is good from a liquidity justification to be long stocks, but 2. Crystallising the threat of the coronavirus is not so good from an economic perspective.

The DAX looks set for a higher open after 1% gains on Tuesday. The FTSE 100 looks ready to open back above the 7,700 threshold. Looking now at the STOXX 600 at record highs and up 6 of the last 7 days, it looks like markets have already priced in a big 2020 earnings recovery. If the coronavirus, or some other black swan does throttle the expected recovery come Q1 earnings season, then we could be in a tricky spot.

 

FOREX

The New Zealand dollar s the top FX-mover overnight following the RBNZ decision to keep rates on hold. The decision was anticipated but a message of now more cuts this year saw the Kiwi climb 0.9%.

The dollar was lower yesterday because it felt like Jay Powell left the door slightly ajar for a rate cut this year. It seems that one cause for the Fed to adjust its plans and lower interest rates again is the coronavirus. We would look at any US dollar weakness as a correction. When all the CB’s are eyeing the coronavirus as a possible reason to add policy accommodation, the USD should still be favoured when the US economy is outperforming others.

18-5-2020

Gold hits 7-year high after Powell Warning
Fed Chair Jay Powell has warned the US economic recovery might last through the end of 2021. The Fed is normally too optimistic in its forecasts so the outlook feels bleak. Still, warm weather is encouraging countries to continue exiting lockdown. If the flu s… Read more

14-5-2020

Powell predicts more pain to come but no NIRP
A warning from the top of the US central bank that there’s more pain to come isn’t going down well across markets. Fed Chair Jerome Powell warned yesterday that more stimulus will likely be needed in the US to fend off the economic damage done by virus and pol… Read more

13-5-2020

“Suffering and death” warning hurts markets
A sense of caution has taken hold across markets. Shares, riskier currencies and oil are pointed lower. There’s a reassessment of the likely timeline for economic reopening. Our sense is markets juiced up by higher liquidity may have gotten ahead of themselves… Read more

12-5-2020

Bitcoin halving, dollar breakout on second wave fears
Market sentiment remains fragile. There’s a lot of emphasis being placed on the virus numbers in economies that have been gradually reopening.  Wuhan, the City in China where it all began reported its first ‘cluster’ of new cases yesterday after lifting restri… Read more

20-4-2020

US oil lowest since 1999, European shares diverge from Wall St
Another oil crash US crude prices have plummeted over 15% to the lowest since 1999. The 21-year low came as sellers were trying to get ahead of the expiry of the May contract tomorrow. Open interest was five times the average. A condition of Super Contango in… Read more

14-4-2020

Lifting restrictions, Softbank & Gold 7-year high
Stocks rising Markets are restarting after a long Easter weekend with a positive tone. Things have moved on from when there was so much bad virus news that the weekend was to be avoided at all cost. European shares look set for a positive open as more nations… Read more

9-4-2020

S&P 500 enters bull market, lockdowns to extend
The mood in markets continues to improve but it’s patchy. Virus cases continue to rise at a rapid clip but markets are extrapolating the data forward and hoping we’re close to a peak.    Asian and European markets are playing catch-up to the rally on Wall St… Read more

8-4-2020

Rally fizzles out, Tesco pandemic costs, Sterling & Boris
Optimism is fizzling out as doubts grow about how and when exactly quarantine and lockdown restrictions will end. The failure of Eurozone finance ministers to agree joint action underscores the limited capacity of governments to cushion the coming economic fal… Read more