- Rates: Plunging oil prices hurt risk sentiment
Upheaval in the oil market remained the dominant trading theme. There’s plenty of oil, but nowhere to store it. Crashing demand and oversupply sent oil prices into tail spin. Stock markets lost up to 4% as the oil sector surely won’t be the final one under severe stress from the great lockdown. Core bond yield curves bull flattened. - Currencies: Dollar gains only modesty against other majors despite global risk-off
The trade-weighted dollar returned north of 100, but the safe haven bid for the US currency was not that impressive. The euro and the yen held up quite well. Smaller, less liquid currencies, including sterling, faced stronger headwinds. Uncertainty on the EU rescue package is weighing on the euro, but for now the 1.0770 support isn’t challenged yet.
The Sunrise Headlines
- WS plunged for a second day as the oil market collapse and grim corporate outlooks weighed on sentiment. The Nasdaq underperformed (-3.48%). Most Asian markets retreat on low volumes with Japan (-0.75%) leading losses.
- The US Senate passed a $484bn stimulus bill that will replenish the depleted small business aid program ($321bn) and provide more funds for virus testing and hospitals.
- Oil prices took a new dive with WTI for June delivery sliding to $11 p/b and Brent tumbling to $16.52 p/b, the lowest level in almost 21yrs. OPEC+ held a call yesterday to discuss the oil price rout but didn’t roll out new measures.
- The Trump administration vowed to save the US oil industry and safeguard jobs, and is working to warrant energy companies access to lending programs under the $2tn rescue bill, including those aimed at SMEs and the Fed’s facility.
- The ECB is holding a video conference today where reportedly it will deliberate accepting junk-rated debt as collateral from lenders amid concerns that some sovereign and corporate bonds will soon be downgraded to junk.
- US governors are pursuing different paths to reopen local economies with several Southern states pushing ahead with plans to reopen businesses while others voice concern about taking such steps without more testing capacity.
- Today’s economic calendar mostly contains second tier data. The eurozone consumer confidence indicator is set to deteriorate further this month. Spain mandated banks for a 10/2030 bond sale and the UK taps the bond market
Currencies: Dollar Gains Only Modesty Against Other Majors Despite Global Risk-Off
Dollar succeeds only modest gain against majors
The fall-out from the US oil crisis dominated sentiment on global FX markets. After a period of relative calm, smaller currency and currencies from oildepended countries (NOK, CAD, AUD, BRL…) again came under pressure. Admittedly, the moves (against the dollar) were still more orderly compared to the violent swings mid-March. The TW dollar (DXY) kept an upward bias and touched the highest level in two weeks. Still, the gains were modest given the high level of uncertainty on global markets. Despite overall volatility USD/JPY is holding a very narrow range (close 107.80). EUR/USD also hovered in a tight range in the mid 1.08 area (close little changed 1.0858).
This morning, the oil-driven sell-off on WS pushes Asian equities in the red, but sentiment is improving during the session. USD/CNY is trading rather stable (7.0850 area), even as the trade-weighted dollar tries to resume its gradual uptrend. The yen again slightly outperforms (USD/JPY 107.60). EUR/USD is going nowhere (mid 1.08 area). The AUD spiked higher on strong retail sales, but the gain eased as markets doubt the sustainability of sales strength and as global USD strength weighs.
Today, EC consumer confidence and French confidence data will only have limited effect on FX trading. The oil crisis and, to a lesser extent, the debate on the structure of an EU stimulus package probably remain the main drivers for USD and euro trading. The dollar (DXY 100.25 area) remains the by-default haven, but the USD performance against other majors is not that impressive. The US oil crisis and difficulties the US government is facing to channel stimulus to the economy in an efficient way maybe take some shine of the dollar. Political tensions on of EU support measures are weighing on the euro. It is far from evident that a comprehensive solution will be reached this week. Even so the 1.0770 support looks quite solid if an outright political crisis can be avoided.
Sterling was hit hard by the risk-off repositioning, favouring bigger, more liquid currencies like the euro and the yen. The pace of the restart of the UK economy after the lockdown looks uncertain and BoE policy makers sounded rather pessimistic of late. EUR/GBP rebounded north of 0.88. Today, UK price data won’t be a big issue for sterling trading. A continuation of risk-off might cause a further gradual rebound of EUR/GBP away from the 0.87 support
EUR/USD: holding tight consolidation pattern even as sentiment stays risk-off
