Asian equities kicked off the week on a positive note following a firm close in the US on Friday.
Nikkei and Topix gained more than 2% after the Bank of Japan (BoJ) shortened its two-day meeting to three hours and announced to continue buying JGBs and treasury bills ‘without setting an upper limit’ and to raise its annual target on corporate bond and commercial paper purchases to 20 trillion yen to help companies find easy funding through the pandemic-led economic slowdown. The BoJ kept its policy rate unchanged at -0.10%, however, as officials believed pulling the rates lower wouldn’t help boosting demand for credit.
The USDJPY eased to 107.20 and the death cross formation (the 50-hour moving average crossing below the 200-day moving average) hints at further technical shorts on USDJPY before the pair recovers on improved appetite.
The Federal Reserve (Fed) and the European Central Bank (ECB) will also announce their latest policy decisions on Wednesday and Thursday, respectively. As European politicians fail to satisfy the investor appetite on the fiscal stimulus leg, the ECB is expected to move toward purchases of junk bonds to support businesses in their combat against the coronavirus-led economic recession. While the Fed has perhaps little margin to add to its all-in policy, even though the jobless claims surpassed 26 million last week amid the economic shutdown took a heavy toll on businesses across the United States.
The GDP figures in Europe, Canada and the US should give a first glimpse on the extent of economic damages later this week. Investors keep in mind that the numbers could fall further in the second quarter, as most developed economies halted businesses starting from the end of March only, and the activity was near null for the entire month of April, pulling the latest PMI figures to near single digit levels.
But the number of Covid-19 cases shows signs of improvement globally. As we move toward the descending portion of the curve, most developed nations disclose plans of reopening businesses starting from May.
Whether the reopening would lead to a renewed spike in the number of cases is yet to be seen. Good news is, this is not what has happened in China – at least relying on the numbers available to us, and Chinese live animal markets, where this kind of animal-led diseases tend to appear, are open to business. Meanwhile, Shanghai announced ‘weeks-long’ online and offline shopping festival to help small, medium and large businesses to pull their heads out of water.
Back to Europe and UK, the activity is expected to decline by 9% and 7.5% this year according to Goldman Sachs, which warns that the contraction could be as much as 16%, in line with the ECB President Lagarde’s prediction of a 15% decline, if the reopening is slower than expected.
Still, the market mood is better this Monday. Beta-currencies are up against the US dollar, the US 10-year treasury yield advanced to 0.624 as the US dollar index tests the 100 mark to the downside.
Gold remained capped below the $1730 per oz on the back of an improved investor appetite and higher government bond yields.
Meanwhile, nothing could better the mood in oil markets. WTI crude is down 8.85% to below $16 a barrel, as according to the latest EIA report, the non-OPEC producers kept their production flat near all-time highs in December.
The pound pulled out the 50-day moving average resistance (1.2420) against the greenback and advanced to 1.2445. Cable is preparing to make an attempt to the 1.25 offers on the back of a broadly softer US dollar. The 1.25 mark is where the GBP bears and bulls will be fighting, and in the absence of major economic data releases in the UK, the short-term direction in Cable will likely depend on the strength of the dollar. The net speculative positions are flat in sterling, meaning that short-term, non-commercial investors do not have a strict opinion on to where the pound should be heading in the coming weeks.
Speculative long positions in the euro remained firm last week, throwing a floor under the EURUSD sell-off below the 1.08 mark. But firm speculative long positions, coupled with a limited advance in euro, could hint at a steeper sell-off if the risk appetite were to reverse. The single currency will likely remain under the pressure of a blurry compromise amid European leaders’ inability to come up with a solid fiscal rescue plan. Resistance is eyed at 1.10 mark.
Anyway, the European and British stocks are poised for a strong positive start to the week. The FTSE 100 is expected to advance past the 5800p mark despite depressed oil prices and a stronger pound.
On the US corporate agenda, big names are expected to release their first quarter earnings this week; among them Ford, Starbucks, Boeing, Amazon, Facebook, Microsoft, Apple, Exxon Mobile and Chevron. Except from Amazon, Microsoft, Facebook and possibly Apple amid the very timely launch of Apple TV, the first quarter earnings are expected to take a severe hit from the coronavirus-led economic shutdown. But the market reaction to figures could be mixed given the very low expectations, the fuzzy guidance on expectations and mixed investor sentiment.
