As risk sentiment has deteriorated on Monday, after a short-lived recovery witnessed before the weekend, European stocks turned negative again. Investors continue to expresso concerns over the spreading coronavirus and the economic fallout of the ongoing outbreak. The fact that lawmakers in Washington failed to pass a massive funding package designed to counter the economic fallout of the pandemic added to the gloomy picture in the markets.
Meanwhile, according to the latest news, the Federal Reserve announced extensive new measures to support the economy. The central bank pointed to its readiness to use its full range of tools to support households, businesses, and the U.S. economy overall in this challenging time. At the same time, the bank admitted that the great uncertainty remains, and it has become clear that country’s economy will face severe disruptions. Earlier, the German government has signed off on taking on billions in new debt to battle against the economic fallout. Despite these headlines, investors remain cautious and continue to doubt that the measures being taken by authorities cross the globe will be enough to prevent a recession.
Against this backdrop, UK’s FTSE 100 sheds 1.72 percent to 5,101, Italy’s FTSE MIB declines by 0.75 percent to 15,613. France’s CAC 40 loses 0.16 percent to 4,045, while German DAX 30 recovers by 0.24 percent to 8,946. U.S. stock index futures point to a negative open, with Dow futures fell over 900 points at one point. The initial selling pressure has abated somehow but the sentiment remains bearish in general.
The US dollar pulled higher after the initial retreat on Monday. The safe-haven demand continues to support the greenback. Still, in recent trading, the EURUSD pair turned positive on the daily timeframes again, as traders cheered the measures announced by the German government. On the other hand, in its monthly report, the Bundesbank admitted that sliding into a pronounced recession cannot be prevented. The euro bounced from local lows and regained the 1.07 figure during the European trading. Still, due to a lack of the upside impetus, the pair failed to confirm a break above 1.08 as the dollar remains elevated amid the prevailing risk aversion.
As for oil prices, Brent crude has settled in a tight range on Monday as traders decided to take a wait-and-see approach after the recent rout. The prices struggle to stage a sustainable recovery, as worries about the fading demand continue to deter potential buyers. At the same time, market participants still hope that OPEC+ countries will take some coordinated measures to counter the negative effect from the coronavirus outbreak at some point. Strong dollar caps the recovery attempts in the market as well. For now, the $25 handle remains in market focus. A daily close above $26 will ease the immediate selling pressure in the short term.
Nathan Lambert, Head of Global FX Analytical Department