After a record sell-off witnessed yesterday, European stock markets opened sharply higher and have accelerated the bounce by mid-day. On Thursday, equities suffered historic losses after Trump announced travel restrictions from Europe while the ECB left interest rates unchanged. The coronavirus theme continues to dominate markets, with Italy remaining the worst impacted country in Europe - cases in the country surpasses 15,000. Meanwhile, the U.K. Prime Minister Boris Johnson said that up to 10,000 people in the country may be infected with the virus.
On the positive side, the European Central Bank said it would support markets while several exchanges banned short-selling of Spanish and Italian equities that suffered immensely overnight. Also, ECB chief economist Philip Lane said the central bank retains the option of future cuts in the policy rate.
Against this backdrop, UK’s FTSE 100 adds 7.41 percent to 5,623, Italy’s FTSE MIB rallies by 14.64 percent to 17,077. France’s CAC 40 gains 6.99 percent to 4,326, while German DAX 30 rises by 6.07 percent to 9,716. U.S. stock index futures indicate a recovery following the worst day for Wall Street since 1987.
In currency markets, the dollar strength persists versus major counterparts but the impetus seems to be slowing gradually. EURUSD slumped to early-March lows around 1.1050 yesterday and has settled at 1.1160 today, after a rejection from the levels above. Germany’s February CPI came in line with expectations and failed to affect the pair’s dynamics. The common currency has been battling the short-term bearish trend, trying to stay afloat after a brief sell-off after the ECB meeting didn’t add to the appeal of the European currency.
USDJPY meanwhile jumped to the 107.00 figure and may challenge the key moving averages above 108.00 should dollar demand persist in the near term. despite the local rally, downside risks for the pair continue to persist as risk sentiment remains fragile because of the coronavirus that is spreading across the world further. On the other hand, investors are cheering the latest policy actions by authorities in major economies, with the measures being taken help to ease market concerns over the health of the global economy.
In commodities, Brent crude is in a recovery mode along with the rest of high-yielding assets. The prices managed to climb above the $35 figure but are yet to confirm the latest breakout on a daily and weekly closing basis. Sentiment in the oil market is highly dependent on the general demand for risky assets, so should the current rebound start to fade, Brent may retrace the intraday gains easily. On the downside, the $31 handle remains in focus as a break below it will open the way towards fresh long-term lows.
Nathan Lambert, Head of Global FX Analytical Department