US stocks rose again; The Dow (+ 1.62%) and the S & P500 (+ 1.15%) gained Thursday as bank shares rose 2.64% as Federal Reserve (Fed) chairman Jerome Powell said the possibility of negative interest rates for the time being. Nasdaq rose 0.91%.
But gains in U.S. futures remained limited in Asia amid rising tensions between Washington and Beijing amid Donald Trump said he does not want to talk to Xi Jinping at the moment. The blame game continues to gain momentum and worries that frictions between the two countries could take a further toll on global trade. And a renewed tension between the US and China is the last thing the world needs right now. In particular, provided China is likely to have little reaction and remedy to Trump’s accusation that they invented the virus on purpose. We still believe Beijing will try to improve the relationship and refrain from adding gas to fire.
In terms of data, China has some good news. The fall in industrial production fell to 4.9% in April from -8.4% printed a month earlier, bringing annual production to 3.9%, better than 1.5% deployed by analysts. The fall in retail sales remained a little stronger than analysts’ expectations, but overall, today’s data confirms a rapid recovery in Chinese macrometrics, giving morose investors hope that coronavirus life may not be as dull as they fear.
However, the Chinese figures certainly do not reflect how the recovery will be in the rest of the world. Recovery outside of China is likely to remain dull and risk another wave of contagion, which could further damage businesses and public finances.
As of today, US retail sales may confirm a 12% y / y decline in April versus -8.4% recorded a month earlier. Soft US data must translate into stronger security flows and a firmer US dollar.
But oil traders are clinging to the hope that the decline in oil demand will be less than the IEA’s previous forecast of increased mobility prospects in Europe and the US. And key oil producers continue to trim their sales to reduce the gap between the record drop in oil demand and high production all over the world. Latest news suggests that Saudi Aramco now sells only to major buyers. Prospects for a softer fall in oil demand and declining supply continue to push oil prices higher. WTI Crude Oil Tests $ 28 Per Barrel as Brent crude fights against the $ 32 resistance. But a growing anxiety about the pace of normalization and rising tensions between the US and China could cap the WTI’s upside potential by the $ 30 mark.
Activity in FTSE futures (+ 1.01%) suggests a positive open in London; energy stores could surf the positive oil wave before the weekly closing bell.
In the foreign exchange markets, the US dollar index consolidates above the 100 mark on fixed demand for safe harbor. US Treasuries are withdrawing as investors continue to accumulate in less risky US debt, despite the uptick in equities – evidence that risk appetite remains fragile.
EURUSD extended losses to 1.0775 on Thursday and remained offered near the 1.08 mark in Asia. The strong US dollar and uncertainties surrounding the European Central Bank’s (ECB) firepower weigh on the euro’s demand. Today, the Eurogroup meeting will lean on the progress of the Second Amendment, adopted on May 8, 2020, to extend the scope of the Temporary State Aid Framework, giving countries access to a credit line to fund their balloon deficit with coronavirus. However, lending volumes remain fairly limited to a maximum of 2% of Member States’ GDP. So even good progress on fiscal legs may not replace ECB aid if the bank finds its intervention ability crippled by the German opposition. Therefore, the prospect of scarce fiscal and monetary support may further weigh European assets and the euro.
Across the channel, the pound jumped back to the 1.22 mark after testing the April support of 1.2170 on Thursday. The sterling outlook remains negative as the final round of Brexit talks this week showed no signs of progress in key areas. But the clock is ticking higher than the critical June 2 deadline, and the chances of seeing a deal remain small. Therefore, the increased pricing of a no-deal Brexit should further weight the pound and encourage a further retreat towards the 1.20 level, and possibly below the greenback.