European stock futures are trading lower for another day as traders are picking up the momentum from Wall Street. Traders are also concerned about the extension of the coronavirus lockdown in the biggest economy of the eurozone, Germany. It seems like traders have stopped being overly optimistic about the economic numbers.
This is because we had eye-popping US retail sales data yesterday, and it failed to stimulate any bullish moves for the US stock indices. Apart from the Dow Jones Industrial Average, the rest of the two stock indices closed in negative territory. The Dow Jones advanced 0.29%, the S&P500 stock index fell 0.03%, and the Nasdaq index declined 0.58%.
Weekly Jobless Claims
All eyes will be on the US Weekly Jobless Claims data, which is due at 1:30 PM London time. The forecast for today is 775K, while the previous number came in at 793K. Remember last week; the US weekly jobless claims number was much better than expectations. if we see an echo of this message in today’s number, it may strengthen the risk appetite among traders.
Speaking of risk-on and risk-off trades, the precious metal gold, saw further declines yesterday. As mentioned yesterday there is no doubt that gold is oversold, and a strong rebound is on the cards. The optimism is still strong among gold traders that the US economy will see another stimulus relief plan from the US lawmakers. Given the fact that inflation is on the rise, and we have a strong possibility of another stimulus package, the long-term fundamentals look strong for gold prices to move towards the $2000 price level.
In the Forex market, we are witnessing weakness for the Sterling dollar pair. The British pound recorded two back-to-back days of losses yesterday, and it is on track to record another day in negative territory.
A lot of this weakness in the Sterling is primarily due to the strength in the dollar index (more on currency strength). After all, we had blowout US retail sales data–which no one saw coming in that strong yesterday. The economic number was more than four times stronger than the forecast; the actual was 5.3%, while the market was expecting a number of 1.2%.
The economic number which could provide some sort of help for the British currency will be released tomorrow. It is the retail sales data. Market players are expecting a fragile reading, which is likely to push the Sterling even lower. On the monetary policy front, we do not think that the Bank of England is going to exercise the negative interest rate option anytime soon. After all, this should be the contingency plan. Negative interest rates are the last bullet in the BOE’s monetary policy chamber, and the bank should hesitate to fire them. This should only be used only if the economy is completely derailed.