May 18, 2020

European Markets Trade Higher

European Markets Trade Higher

European futures are trading higher as traders are picking up momentum from Asia. Investors are hopeful about business activity resuming across major countries after a long period of lockdown.

This sanguinity has also pushed the US futures higher and today’s price action may help the major US indices to trim some of their losses from last week. The disorderly opening of the US economy continues, with certain states such as California resuming business activity by nearly 75%. Other states such as New York, the epicenter of the disease, are set to reopen the economy as well.

However, the economic data is still printing some stark readings and it is widely believed that we have not seen the bottom in terms of macroeconomic numbers. The Japanese economy reported its contraction of GDP today. The country’s GDP shrank by 3.4% at an annual pace during the first quarter. This remains a concern for many investors because Japan is the third largest economy in the world

Last Friday, the US retail sales number fell off a cliff and the factory output numbers were also jaw-dropping. Many investors are still wondering if the US equity markets are going to revisit the COVID-19 low especially after the fresh warning from the Federal Reserve’s chairman who warned investors that a full recovery may not happen if we do not have a vaccine. However, the chairman does see a rebound for the US economy during the second half of this year.

One particular factor that can drag the US markets lower is the level of friction between the US and China. Tensions have been rising over the last few weeks, and it is likely that Donald Trump may up the ante as the US elections are around the corner.

In the commodity spaces, it is turning out to be another remarkable day. Both Crude and Brent prices are up over 4% and they are building upon their gains from the past few weeks. The global economy is re-opening and the oil glut has eased off. Both factors are helping the prices. Having said this, it is still unclear if the prices can continue their upward journey at the current pace, especially, if we have a valid reason for the crude price to top the $35.

As for the currency markets, investors are focused on the sterling-dollar price action. The British currency, sterling, has recovered some of its losses against the dollar. Investors are wary of negative rates after the Bank of England’s chief economist Andrew Haldane made comments regarding an unconventional monetary policy. This includes the possibility of negative interest rates. The currency can dip below the 1.20 mark against the dollar and it could easily re-visit the sub 1.14 level if negative rates become a reality.