European bourses are attempting a recovery after steep declines in the previous session. Stocks across Europe plummeted on Tuesday, booking their worst daily losses so far this year.
While the US and UK have done well to roll out Covid vaccines quickly and reopen their economies, this has not been the case in other significant economies. Covid cases globally increased by 12% throughout the past week, primarily due to a resurgence in India, Pakistan, and South America. Japan’s numbers are also being watched closely.
Fears over the impact that rising Covid cases could have on global economic recovery hit risk appetite hard on Tuesday. Travel restrictions will likely act as a brake on the recovery. The markets’ performance yesterday served as a stark reminder that we still can’t draw a line under Covid risk.
Today, risk appetite is attempting to rebound as corporate earnings optimism overrides Covid concerns. ASML, Heineken and Kering have all released better-than-forecast numbers.
US futures are pointing to a softer start, with the tech-heavy Nasdaq underperforming its peers in the wake of Netflix’s results. Netflix shares are trading down over 7% pre-market.
The first big-tech company to report, investors were looking at these numbers to set the scene for the coming week as other big companies announce their earnings. Weaker subscriber numbers and poor projected customer growth ahead points to a sharp deceleration in the stay-at-home trade, which boosted tech across 2020.
US dollar picks up from seven-week low, GBP CPI falls short
The US dollar is picking up off seven-week lows struck overnight and has edged into positive territory. With treasury yields below the key 1.60% level, US dollar demand is likely to remain depressed. However, rising Covid cases in India and concerns over the impact on the global economic recovery is resulting in some safe-haven flows being brought into the equation.
The euro is a notable underperformer, failing to benefit from a brightening picture surrounding the EU’s vaccine programme. News that EU regulators have given the green light to the J&J vaccine has been shrugged off.
The pound is edging a few ticks lower as UK inflation rebounds in March but falls slightly short of forecasts. UK CPI rose 0.7% YoY, up firmly from 0.4% in February but short of the 0.8% expected. Prices started to pick up as business looked towards the reopening of the economy. While this is a move in the right direction, it’s still a very depressed level, historically speaking, so the pound is struggling to be excited by this.
Oil extends losses on demand concerns
Oil is selling off for a second consecutive day, having experienced its largest daily drop in two weeks in the previous session.
An anti-trust suit on OPEC output cuts, surging Covid cases in India and an unexpected gain in crude stockpiles are keeping oil prices under pressure.
As Covid cases continue to surge in India, the world’s third-largest importer of crude, concerns over the demand outlook are understandably increasing. The ferocious wave engulfing India needs to be brought under control in order for oil prices to make any meaningful recovery.
In addition to demand concerns, the move lower in oil was exacerbated by reports that the US House Judiciary Committee has passed a bill that could leave OPEC open to anti-trust lawsuits over production cuts. Effectively, the bill would make it illegal for any foreign state to act collectively to limit oil output or set oil prices. Given that OPEC regularly partakes in such activities, investors have been shaken. However, the chances of such a bill being signed into law are minimal. Similar attempts have been made on several occasions over the past few decades, always in vain.
The American Petroleum Institute reported a surprise build in inventories of 0.436 million barrels of oil, sharply up from a draw of 3.608 million the week before. This does not bode well for the closely-watched official EIA inventory data later today.
Gold looks to treasury yields amid a light economic calendar
Gold gained ground in the previous session on falling US Treasury yields while receiving a boost from safe-haven flows. Today, the slight uptick in US treasury yields and improved sentiment in the equity market sees gold prices giving up earlier gains.
With little in the way of high-impacting macro data to drive gold, investors will be watching US treasury yields for further impetus.
