A swing to a marginally more positive outlook for major markets has taken hold as the European session kicks in today. There has been a nod of encouragement towards the US Congress passing a $480bn relief bill for small businesses. How long this move lasts though will be interesting. A continued rout in the price of oil may be bearing little significance this morning, but it smacks of bigger macro fears. Reduced economic activity and deflation concerns remain. The “bull flattening” of the US yield curve once more, where longer dated yields fall faster than shorter dated yields, reflects this too.
Recent sessions have taken a more risk negative bias and this trend could well come back to bite again on a morning with little real newsflow to hold a sustainable rally.
A slight US dollar slip is in line with the marginal risk positive outlook this morning. Equity markets are bouncing initially with US futures around +1% higher. The Aussie and Kiwi are performing well too. With several major markets eyeing technical support levels yesterday, the response needs to be decisive to prevent momentum gathering in a renewed correction. UK inflation was in line with expectations this morning as both core and headline CPI slipped slightly. UK headline CPI dropped to +1.5% (+1.5% exp, down from +1.7% in February) whilst UK Core CPI was a shad down to +1.6% (+1.6% exp, down from 1.7% in February).
Wall Street closed sharply lower for the second session in a row, with S&P 500 -3.0% at 2758. However, with the E-mini S&P futures +1.0% higher this morning, this is helping to stabilise sentiment. Asian markets were mixed overnight, with the Nikkei -0.7% and Shanghai Composite +0.3%. European markets are also looking more positive today, with FTSE futures +0.9% and DAX futures +1.1%.
In forex, we see a marginal USD negative and risk positive session. AUD and NZD are outperforming, whilst CAD has also found a degree of respite.
In commodities, the slide in precious metals continues, with gold falling marginally again, and silver -1.5% lower. Another day, another sell-off on oil, with WTI (now the June contract) down -7% and Brent Crude down -13%.
There is little of note on the economic calendar until the US session later today. Eurozone Consumer Confidence is at 1500BST and is expected to at 1330BST is expected to decline to -19.6 in April (from -11.6 in March) which would be the lowest since May 2013. With all the headlines the glut of oil supply and lack of storage, the EIA Crude Oil Inventories will be key to watch at 1530BST. Another huge inventory build of 16.1m barrels is expected, after last week’s massive +19.2m barrels of build.
We have been discussing the gradual erosion of the gains on Cable in recent days, however, the move accelerated yesterday with a decisive negative candlestick. This candle has shown intent for the bears to take control of the market and important support levels are now being eyed. There is a basis of consolidation around the zone of $1.3200/$1.1405 today, around $1.2300. However, given the strength of the selling pressure yesterday, the Cable bulls are going to do well to contain the move around here.
The key April higher low at $1.2160 is seen as a crucial gauge now. A decisive breach would be a massive breakdown and a bearish signal suggesting real renewed downside could set in. Given the speed of the recovery in late March, there is little react support to speak of until $1.1930 area. The $1.2090 serves as the next consolidation zone. There is resistance for the bulls initially around $1.2300 and then $1.2400. We are now sellers into near term strength.