Following decent gains in Asia, European stock markets followed suit and staged a rally on Tuesday, as investors continued to cheer a huge stimulus package delivered by the Federal Reserve overnight. The US central bank said it will run an open-ended asset purchase program amid the global coronavirus outbreak. Also, the sentiment was helped by the reports that Italy registered a smaller daily increase in the number of new confirmed cases for a second consecutive day.
On the negative side, the Eurozone PMIs painted a terrible picture of business activity in March, according to the official preliminary data. The composite PMI plunged to 31.4 from 51.6 in February, leaving the index at its lowest on record. German data disappointed heavily as well. Still, as investors are now focused on supportive measures from governments and central banks, stocks extended the relief rally despite the weak economic releases.
Against this backdrop, UK’s FTSE 100 adds 4.33 percent to 5,210, Italy’s FTSE MIB rises by 5.96 percent to 16,487. France’s CAC 40 gains 4.63 percent to 4,095, while German DAX 30 rallies by 6.13 percent to 9,273. Later today, the European finance ministers will hold a video conference to discuss their coordinated response to the coronavirus outbreak. U.S. stock index futures pointing to a positive start, boosted by the promise of unlimited support for markets from the Federal Reserve and hope that the Congress is moving towards a massive fiscal stimulus package. However, despite today’s gains, most global indexes remain in a bear market.
The latest actions by the US central banks have deterred dollar bulls. As a result, EURUSD shrugged off weak European data and extended its local rally towards four-day highs marginally below the 1.09 figure. GBPUSD jumped above 1.16 and has even exceeded the 1.17 handle. The pair’s ascent was stopped by the 1.18 area. USDJPY has settled in the negative territory on the daily timeframes despite the lack of safe-haven yen demand. Still, the dollar manages to hold above 110.00 so far.
As for oil, Brent crude briefly jumped to one-week highs just below $31, where the futures have encountered some offers and retreated partially, challenging the $30 psychological level again. A daily close above this barrier is needed for a confirmation of the latest bounce, witnessed along with a relief rally in risky assets in general. However, as the fundamental picture in the market remains unchanged, the upside potential is still limited, as demand concerns will likely cap further bullish attempts.
Nathan Lambert, Head of Global FX Analytical Department