There is a mild dollar positive, risk negative tone to major markets to start the week. Countries continue to see signs of flattening or improving death rates of COVID-19. This is a positive, which is allowing the process of exit strategies from lockdowns to be discussed or implemented. However, the attention will be on how the second wave of infection kicks in. So there is a sense that traders do not want to be unrestrained in their hope of recovery, for the fear of being burnt once more.
There is a degree of European markets playing catch up on another breakout on Wall Street on Friday, but this is unlikely to be the start of another bull surge for European stocks today. US futures are marginally weaker and the dollar is also edging stronger, along with US Treasury yields slipping slightly. This would not tend to be a recipe for sustained equity gains. Japanese trade data for March also showed worse than expected exports of -11.7% and higher than expected imports of -5.0% (-10.1% exp for exports, -9.8% expected for imports). This has significantly reduced the Japanese trade surplus and weighed slightly on the yen today.
The big mover this morning is a huge sell-off on WTI that sees the front-month May contract down close to -20%. The outlook will not look so bad tomorrow after the contract rollover, but still with the massive oversupply in the market, there are on-going negative pricing pressures.
Wall Street closed with another breakout to multi-week highs on Friday (S&P 500 +2.7% at 2874) whilst the E-mini S&P futures are; slightly weaker today -0.5%. This has driven a mixed session in Asia, with the Nikkei -1.1% (weighed slightly by the trade data) whilst Shanghai Composite was +0.3%. In Europe there is a positive edge to early trading with FTSE futures +1.1% and DAX futures +1.0%.
In forex, we see USD positive across most major pairs, with CAD the underperformer (on the continued slide in oil) and NZD an outperformer (on improved COVID-19 infection rates).
In commodities, there is a continued slip back on gold whilst silver is holding up OK, but the big mover is oil, especially WTI (-20%) whilst Brent Crude is -3% lower.
There is a Eurozone bias to the economic calendar today. Eurozone Current Account for February is at 0900BST and is expected to show a third consecutive month of increase in the surplus to +€36.3bn (up from €35.0bn in January). The Eurozone Trade Balance is at 1000BST and is also expected to show another increase in February, to +€19.3bn (from +€17.0bn in January).
With dovish comments from RBNZ Governor Orr last week, the fear was that the Kiwi would begin to slide in performance. Despite the uptick and positive session for NZD/USD on Friday, there is still a risk of the Kiwi struggling. The chart of NZD/USD reflects this, with the decisive breach of the recovery uptrend from the $0.5470 March low. The key will now be how the bulls react early this week. It was interesting to see that support of Thursday’s low at $0.5920) formed around the rising 21 day moving average (at $0.5970 today) which has so often previously been a basis of resistance, but is now supportive.
The bulls need to sustain the momentum of Friday’s rebound as following the trend breach the risk is the market forms a lower high and a new negative trend develops. They will be encouraged by this morning’s early gains, but failure between the old resistance at $0.67070/$0.6130 For now an uncertain near term outlook has formed. A closing break above $0.6130 would decisively improve the outlook.