- Rates: WTI crude falls to -$40/barrel!
WTI crude prices for delivery next month tumbled into negative territory in the final stages of US trading, hurting risk sentiment and triggering an outperformance of US Treasuries. We still prefer to err on the side of caution as the economic/corporate damage of the lockdown recession unravels. - Currencies: Dollar profits only modestly from return of risk-off
Yesterday, the dollar remained well bid, but gains could have been bigger considering the deterioration in global sentiment. This morning, the yen even slightly outperforms the dollar. Is the Japanese currency regaining some of its safe haven appeal? We keep a close eye at the EUR/JPY cross rate nearing the key 116 support area.
The Sunrise Headlines
- US equities tumbled, led by energy stocks amid a historic selloff in the oil market. The Dow Jones underperformed (-2.44 %). Asian markets followed Wall Street lower with India (-2.5%) leading the losses.
- US crude oil futures crashed deep into negative territory for the first time in history, touching -$40.32 as traders dumped expiring May contracts amid evaporating demand and an overwhelmed storage capacity.
- The Trump administration and Congress trudged toward a $450bn stimulus package to boost the small-business loan program that ran out of money and add funds for hospitals and COVID-19 testing.
- US president Trump announced he will suspend all immigration into the US to stem the spread of the coronavirus and safeguard jobs while some southern states (e.g. Texas and Florida) are already relaxing some lockdown measures.
- US president Trump said the country may put as much as 75mln barrels into the national reserves and considers halting incoming Saudi Arabian crude oil shipments to support the battered domestic drilling industry.
- RBNZ governor Adrian Orr announced the central bank is assessing the need for additional stimulus with QE a preferred tool over negative interest rates. Orr also shared the RBNZ is open to direct monetization of government debt.
- In today’s economic calendar the German ZEW indicator will be gauged. Investors await the outcome of the EU summit kicking off thursday on how to fight the coronacrisis. Germany, Italy and the UK tap the bond market.
Currencies: Dollar Profits Only Modestly From Return Of Risk-Off
EUR/JPY nearing key support!
Yesterday, the trade-weighted dollar (DXY) several times tested the 100 mark, but a sustained break didn’t occur (at that time). Dollar bulls maybe should be a bit disappointed as the global mood was far less optimistic than last week, with the unprecedented decline of the (US) oil price an illustration of how the pandemic is unravelling parts the economic (and financial) infrastructure via several channels. Of late, bad news, even as it came from the US, mostly supported the dollar, but yesterday USD gains stayed modest. We don’t see it a real change in the FX reaction function yet, but keep an eye on it. EUR/USD closed slightly lower at 1.0862. USD/JPY also closed marginally higher at 107.62
This morning, the risk-off correction is further spreading into Asian markets. Uncertainty on the health of North Korean leader Kim Kong UN is an additional source of (regional) uncertainty. The trade-weighted dollar finally regained the 100 mark (currently 110.10 area).The Korean won underperforms. The yuan is also losing ground, but only modestly (USD/CNY 7.0850). Interesting, the yen gains against the US dollar and EUR/JPY is nearing the key 116 support area. Today’s eco is modestly interesting. Investors will keep an eye on the ZEW investor confidence, but the PMIs and the German IFO business climate to be published later this week are more important. Global factors, including the developments in the oil market, will continue to drive global FX trading. EUR/USD remains vulnerable as investors await a potential compromise on an EU support package to be decided at a summit later this week. At the same time, we keep a close eye at the yen cross rates. EUR/JPY breaking below 116 could trigger further stop-loss selling both in EUR/JPY and USD/JPY. EUR/USD 1.0770 remains our first technical reference for EUR/USD.
Yesterday, sterling underperformed the dollar and the euro. Last week, the EUR/GBP cross rate already showed tentative signs of bottoming in the 0.8700/0.8680 area. For now, it looks that the UK probably won’t be a frontrunner in the easing of the lockdown measures. This was illustrated by comments of BoE’s Broadbent indicated that the assumption of a 3-month lockdown was reasonable. With sentiment on risk further deteriorating this morning, EUR/GBP might continue drifting north in a daily perspective
USD (Trade-weighted-DXY): dollar drifting north of 100, but gain could have been bigger given the global risk-off.
