The fear of risk led the markets on Monday, amid mounting tensions between the US and China. US President Trump said that he has strong evidence that the coronavirus originated in a Wuhan lab. He also complained that China was not complying with trade deal quotas and threatened to impose new tariffs.
The dollar was fairly stronger. EURUSD dropped towards 1.0900. The drop was due to downwardly revised PMI and plummeting investor sentiment. GPBUSD bounced from 1.2404 to rest at 1.2450. Other major currency pairs did not see much movement. Gold continued its rally settling above $1700. Crude oil performed well with WTI closing at an impressive $21, reversing a previous decline.
The Dow Jones Industrial Average added 26 points, or 0.1%, to end the session around 23,750, the S&P 500 index put on 12 points, or 0.4% to close near 2,843 and the Nasdaq Composite index added 106 points to about 8,700.
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The EUR was the worst performer on Tuesday against the greenback after the German constitutional court ruled on ECB’s stimulus program introduced back in 2015. It settled around 1.0850. GBPUSD ranged for most part of the day with no particular direction. Crude oil prices rallied and WTI traded above $25 amid hopes that economic revival will boost demand. Gold spot surged settling around 1710 a troy ounce.
The equity market rallied in optimism of the economic reopening but retreated from their highs when FED’s Clarida announced that the unemployment rate was going to surge to levels not seen since the 1940s. The S&P 500 SPX rose by just 0.9% to 2,868 and the Dow Jones Industrial Average added 133 points, or 0.6%, to 23,883. The Nasdaq Composite added 1.1% to 8,809.
Wednesday was dark. The final versions of EU Services PMIs came in mixed with downward revisions in Spain and France, yet slightly better numbers in Germany and the rest of the European Union. However, the economy is still at record contraction and EUR/USD fell sub 1.0800. The US ADP survey indicated that the private sector lost over 20 million jobs in April, the market reacted moving slightly to the negative side.
Trump continued to escalate tension with China over the Coronavirus and the trade deal and the White House announced its intention to wind down the coronavirus task force in a few weeks and transfer responsibility to federal agencies. Commodities suffered pressure. WTI slumped to $24 per barrel and gold finished at $1690 a troy ounce.
The Dow Jones Industrial Average lost 218.45 points, or 0.9%, to finish at 23,664.64 while the S&P 500 lost 20.02 points, or 0.7%, to end at 2,848.42. The Nasdaq Composite added 45.27 points, or 0.5%, to close at 8,854.39. Analysts at ANZ Bank stated that attention still remains focused on economies reopening.
The greenback started Thursday with a strong footing, but ended up losing stance against its major rivals amid mounting speculation that FED funds rate would fall into negative territory early 2021. GBPUSD ended the day slightly higher due to dollar weakness. Gold soared to $1720 because of plummeting US treasury yields.
Crude oil price surged and establish fresh weekly highs as a result of increasing demand from China fueling hopes that demand would continue to increase. However it later trimmed these gains. Traders started to pay attention to April Nonfarm Payroll report due for announcement on Friday.
US stocks rose with the Nasdaq jumping to more than 8,972.6, its closing level at the end of 2019 which put the index back into positive for the year clearing the pandemic losses. The Dow Jones Industrial Average added about 212 points, 0.9%, to close near 23,876, while the S&P 500 added about 33 points or 1.2%, taking it close to 2,881.
On Friday the Nonfarm Payroll report was turned in and Sal Guatieri from the Bank of Montreal called it a job report from hell “one never seen before and unlikely to be seen again barring another pandemic or meteor hitting the earth”. 20.5 million Americans fell off payrolls in April more than twice as many as in the entire great depression. The unemployment rate hit a post war high of 14.7%.
In other news, Krishen Rangasamy from the National Bank of Canada stated that the Canadian dollar seemed a bit overvalued. Analysts at Westpac Institutional Bank also stated that the recent strength of AUDUSD pair was unjustified and would be tested in the weeks ahead.
The bank said “We would sell the Aussie at current levels, add that to short on strength to recent highs at 0.6550 and run a stop on the position at 0.66. We are forecasting a drop to 0.62 by the end of the quarter while our fair value suggests a drop to 0.61 should be expected. We would target a move to the 0.61/0.62 level to take profit.”
Matthew Hornbach, Global Head of Macro Strategy at Morgan Stanley stated that investors should be positioning themselves for a weaker dollar overtime. “We see a dramatic increase in supply meeting, and then exceeding, demand. And while the demand for US dollars is at a fever pitch today, we don’t think that demand is going to last forever either.”
Written by;
Nnadi Victor
An Independent Economics Researcher
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