The European Central Bank announced a new Pandemic Emergency Purchase Program that will use 750 billion euro to purchase securities to help support the regional economy. In a knee-jerk reaction to the central bank’s actions, European stocks traded higher but the recovery didn’t last long, and risk aversion reemerged quite soon, as coronavirus-related concerns continue to unnerve investors and fuel fears of a recession, or even a depression in the global economy.
In part, stocks had to reverse early gains amid dismal economic data out of the Eurozone. In particular, German business climate index plummeted from 96.0 to 87.7 in March, the largest drop since 1991. Moreover, the index arrived at the lowest level since 2009, suggesting the coronavirus outbreak is already starting to hurt Europe’s largest economy. According to the latest reports, Germany is planning to offer a 40-billion-euro aid package to help self-employed and very small businesses. Direct payments to self-employed and businesses with up to 10 employees for three months is being considered.
Against this backdrop, UK’s FTSE 100 sheds 1.56 percent to 5,001, Italy’s FTSE MIB rises by 0.98 percent to 15,273. France’s CAC 40 loses 1.16 percent to 3,711, while German DAX 30 loses 1.15 percent to 8,344. U.S. stock index futures point to a negative start on Thursday, as the coronavirus-related headlines continue to drive stocks lower.
Meanwhile, the dollar remains on the offensive against most counterparts. The USD index extended the rally to the 102.00 handle, challenging three-year highs. Should the upside pressure persist in the near term, the DXY may test March 2017 high above 102.20. As long as the index remains above the 200-day SMA, the bullish outlook persists.
Amid a broad-based demand for the greenback, EURUSD has accelerated the decline and plunged to three-year lows and is now threatening the 1.07 figure. Weak data out of Germany added to the negative pressure surrounding the common currency. It is also reported that the German government considers authorizing emergency borrowing as soon as next week. As the sentiment towards the dollar remains upbeat, the pair may challenge fresh long-term lows in the near term.
In commodities, Brent crude is desperately trying to hold above the $25 handle, retaining a bearish bias after yesterday’s plunge to 17-year lows around $24.50 amid a combination of a virus crisis and OPEC’s inaction. However, should the prices extend the rout and start to near the $20 level, the exporters, including Saudi Arabia and Russia, will likely take some emergency actions that will lift Brent at least above $30.
Nathan Lambert, Head of Global FX Analytical Department