Oil prices fell on Friday after Russia pulled away from the OPEC + meeting without accepting further production cuts. The oil market has been under pressure in recent weeks, as discussions about the possibility of a major economic disruption due to the health emergency have turned demand expectations upside down. When OPEC said it was talking about cutting production by 1.5 million barrels a day, it showed its hand to the market – it was worried about demand, so when Russia pulled out of the meeting without agreeing to reduce production, sales pressure increased.
Over the weekend, the Saudis essentially launched a price war with Russia. They have reduced their oil prices and there is even talk of the Kingdom also considering increasing its production. When the oil trade started last night, the energy market opened more than 17%. The Dow Jones futures contract also plunged and heavy losses are expected for Europe.
The stock markets in Asia are down sharply due to the collapse of the oil market. The Nikkei 225 lost more than 5%, while the Hang Seng is down more than 3%. Government bond yields also fell – to the point where the 10-year US yield fell below 0.5%. Copper, platinum and palladium are all down more than 2%. Gold was trading above $ 1,700, but is now back below the metric. Bitcoin and ethereum also fell, as fear spread across all markets.
Japan released revised GDP figures for the last quarter of 2019. On a quarterly basis, the economy contracted 1.8%, while the preliminary reading was just a drop of 1.6 %. On an annualized basis, the economy contracted 7.1%, also a larger contraction than previously thought. Reading has fueled fears of a recession.
During the night, North Korea launched at least three unidentified projectiles, these are likely to be part of the regime’s military exercise, but that does not help the feeling of investment.
Stock markets in Europe and the United States fell on Friday as concerns over the coronavirus damaged sentiment. Fears surrounding the crisis intensified as the number of infections increased, and traders feared that the West would suffer something similar to what Wuhan suffered. Last week, the Fed announced a cut in emergency rates, the IMF and governments announced health funds to fight the crisis, and the movements actually worried dealers. The interventions acted as red flags, which fueled the sale of panic.
Over the weekend, Italy announced that the Lombardy region was locked out. Travel restrictions will remain in effect until early April. The north of Italy is the industrial base of the country, so such drastic measures risk causing serious trade disruption.
The Dow Jones and the S&P 500 closed lower Friday despite the impressive employment report, but still ended far from the lows of the session. Larry Kudlow, one of President Trump’s chief economic advisers, said the government was considering “targeted measures” to help offset problems in the airline industry. Friday, Delta Airlines and United Continental Airlines gained ground.
The impressive US nonagricultural payroll report was encouraging to see from an economic point of view, but as far as dealers are concerned, history played the second role in relation to concerns about the health crisis . The report showed that 273,000 jobs were added in February, which shattered the estimate of 175,000 consensus. January’s reading was revised up from 225,000 to 273,000. The unemployment rate slipped to 3.5% from 3.6%. Average profit fell to 3% from 3.1%, which was in line with expectations.
Last week, government bond yields hit historic lows. Friday, the 10-year US yield traded below 0.7%, which highlights the fear that gripped the markets. The Federal Reserve unexpectedly lowered rates by 0.5% last week, but dealers still believe more interest rates are in the works. We are talking about rate cuts by the Bank of England and the European Central Bank. Monetary policy may not be an effective way to deal with the crisis, as businesses or individuals are unlikely to borrow more in the current environment.
China released its latest trade data over the weekend. Exports fell 17.2%, while the consensus estimate was -14%. Reading was a big drop from the 7.6% growth posted in January. Imports fell 4%, which was much better than the 15% drop that economists expected, but keep in mind that the previous reading showed growth of 16.3%. It is clear that the health crisis in China has caused major disruptions, especially in exports. China is the workshop of the world, so it’s not surprising that there was a huge drop in exports last month.
The US dollar index rebounded in the wake of the solid US employment report, but the currency has been significantly weakened recently, and the broader bearish trend could continue if there were speculation on declines additional rates from the Fed.
Canada also released its latest employment data on Friday. The unemployment rate fell from 5.5% to 5.6%, meeting expectations. The job change showed that 30,300 jobs were added. The more detailed report showed that 37,600 full-time jobs were added while more than 7,000 part-time jobs were lost. The weak oil market dampened the Canadian dollar, which is why the USD / CAD ended higher on Friday.
At 7 a.m. (UK time), the German industrial production report will be published. Economists expect growth of 1.7%, which would be a rebound from the 3.5% drop in December. The trade balance will be published at the same time, and the surplus should cool to 18.8 billion euros against 19.2 billion euros.
At 12:15 p.m. (UK time), Canadian housing starts will be posted and traders expect 205,000.
EUR / USD – rebounded at the end of last month and if the upward movement continues, it could target 1.1400. A pullback could find support in the 1.120 area.
GBP / USD – has been pushing higher since the end of February and a break above the 1.3200 area could put 1.3284 on the radar. 1.2990, the 100-day moving average could be used as a support.
EUR / GBP – rallied from mid-February and while it remains above the 100-day moving average at 0.8517, the outlook should remain positive, and it could target 0.8786. A move below 0.8600 should put 0.8517 into play.
USD / JPY – has been pushing lower for more than two weeks and, although it remains below the 200-day moving average at 108.32, the bearish movement should continue, it could target 100.00. A recovery of 104.63 could open the way for targeting of 106.48.
FTSE 100 expected to open 404 fewer points to 6,058
DAX 30 should open 634 points less at 10,907
CAC 40 expected to open 309 fewer points to 4,830
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