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A fragile return to confidence

​​​​​Today's news headlines:

  • ‘City of London’s post-Brexit outlook dimmed by political spat’. EU negotiator Michel Barnier has rejected the UK’s request for permanent equivalence as a policy in Brexit negotiations. The policy would grant UK firms access to the single market, and without it, firms may be forced to open operations in EU countries to continue ‘business-as-usual’ with the bloc. (Bloomberg)
  • ‘Oil rallies back above $50 while Russia ponders OPEC+ virus plan'. Investors are waiting to see if Russia will cooperate with an OPEC+ plan to cut oil production amid falling demand caused by the Coronavirus. Saudi Arabia has led the push to curb output while Russia has been more cautious, waiting to assess the economic impact first. Oil prices seem to have found a floor at $50 a barrel as markets await Russia’s decision. (Bloomberg)

The spring back

Coronavirus deaths are still rising each day, but at an increasingly slower rate, which is causing market participants to embrace riskier assets. Perhaps the best gauge of this return to confidence—even a fragile one—is Chinese equity markets, which dropped so precipitously after an extended Chinese Lunar New Year holiday. The Shanghai Shenzhen CSI 300 Index, which fell 8% on the New Year open, has regained almost all of its lost ground. Hong Kong’s Hang Seng Index has also recovered all of 6% back to mid-January levels which are firmly middle of the one-year trading range. The same holds true for other major markets which were experiencing spill-over fears, like Japan’s Nikkei 225. Unless a fresh risk is revealed in the coming days, we may have seen the back of Coronavirus disruption. Now all we need is for growth to return, which is a different story.

Bottom line: Aside from the gradual gains in equity markets, over the past two days, we’ve seen the trade-weighted USD Index topping out and oil potentially bottoming. Eagle-eyed readers will be aware that OPEC+ has been unsuccessfully debating additional cuts to supply in order to counter Coronavirus-induced hits to demand. Brent crude seems to have stabilised around the $55 per barrel mark, which is above most OPEC+ members cost of production. This also suggests additional demand is being repriced for 2021, now that the end of the Coronavirus scare seems nigh


Source: Bloomberg


Yesterday, Cable closed above the 1.29 figure after dipping below the level early in London’s session. On a trade-weighted basis, Sterling is currently trading at its 50-daily moving average while the US Dollar seems to have found a ceiling on its year-to-date rally. The Dollar could continue to drop off as riskier assets rally, prompting a GPB/USD move towards the 1.30 level.


The pair extends its rally towards the 1.19 figure as the Euro Index remains pinned to multi-year lows and the Sterling Index trades in the middle of its trading range. A weaker US Dollar has caused both components to nudge higher this morning, which combined with a light economic calendar today, may create flat conditions for the currency cross.


The Euro has found some relief as the US Dollar ticks lower this morning. Yesterday, the pair managed to close above the 1.09 level after briefly dipping below the big figure. With a lack of economic data to provide volatility for the pair, the focus will be on Fed members speaking this afternoon. A move higher for the cross is likely to be driven by a weaker Dollar as risk assets across the board tick higher.