After the initial ascent, European stock markets turned mixed-to-negative on Wednesday as market sentiment started to turn sour. Earlier, markets were boosted by the news that Senate members and lawmakers from the White House administration reached an agreement over a $2 trillion stimulus package to shore up the economy against the coronavirus. However, as the coronavirus continues to spread, with the number of cases growing further, investors resumed the sell-off after a short-lived relief rally.
Against this backdrop, UK’s FTSE 100 adds 0.37 percent to 5,465, Italy’s FTSE MIB declines by 0.29 percent to 16,899. France’s CAC 40 sheds 0.03 percent to 4,235, while German DAX 30 loses 1.56 percent to 9,551. U.S. stock index futures have pared all of the early gains and turned negative as well.
In currencies, the dollar has trimmed its earlier losses during the recent trading, as safe-haven demand starts to pick up again. As such, EURUSD retreated from daily highs around 1.0850 and may challenge the 1.08 figure should investor sentiment continues to deteriorate in the short term. in a wider picture, the downside risks persist as long as the pair remains below 1.10. some selling pressure surrounding the common currency is also due to comments from German IFO economist. According to his estimates, the country’s economy may contract between 5-20% this year because of the coronavirus outbreak.
USDJPY continues to cling to the 111.00 mark after a few failed attempts to break above 111.60. Should risk aversion intensify in the short term, the pair may turn negative on the day and derail the 111.00 level. On the downside, the initial support arrives at 110.75. Once below this region, the greenback may retarget the 100-DMA at 109.30.
In other markets, oil prices failed to settle above $30 and got under a decent intraday pressure. Brent crude got back below $29 and could threaten the $28 figure should the selling pressure persist. Earlier, the oil market failed to capitalize on a rally in global stocks as traders remained cautious amid the lingering concerns over the outlook for energy demand amid the ongoing pandemic. Besides, large exporters including Russia and Saudi Arabia are still planning to increase production from April. Should they give up this idea going forward, the market will see some relief but it won’t be enough for a sustainable rally as long as coronavirus remains in focus.
Nathan Lambert, Head of Global FX Analytical Department