Tiomarkets Daily Commentary 29 April 2020
Well, here we go again. The daily routine of looking for positives that might outweigh the negatives. On the positive side I note that British Prime Minister Boris Johnson and his fiancé welcome a baby boy into the world. Given the PM was gravely ill only a couple of weeks ago, this is welcome news even if its not a market mover. Elsewhere we note differing fortunes for some of the world's largest businesses. British Airways are to make 12,000 staff redundant while Ford announce a $5 billion Q1 loss. No matter one's optimism, these numbers reflect the current economic environment and it’s bleak reading.
Yesterday saw equities struggle to hold their gains accompanied by a late day squeeze in the USD. Asia would see equity futures begin to climb ahead of a day full of data and events and so the USD would begin to slip. Europe had other ideas and back we came the other way. Nothing like a dose of directionless trading to start the day. The first meaningful piece of data would be US Q1 GDP. The headline number came in at -4.8% v -4.0% expected. Worse but hardly unexpected. This however would not be a market mover. What would be a market mover was a headline that Gilead’s testing of the Remdesivir anti-viral drug was showing promising results in the treatment of Covid-19. Cue an immediate rally in equities. By the time Europe was going home, the DJ was up over 600 points at 27,700 and the DAX up 300 points to close just over 11,100. FX was a little more muted in reaction with EUR, GBP and JPY all mid-range against the USD. AUD, NZD and CAD would all outperform. Even Oil found some respite on the Gilead headline, up over 27% to trade at $15.75 a barrel. Next up the FOMC rate decision and accompanying statement. As expected, the Fed keeps rates unchanged. In the statement they pledge to keep rates near zero until full-employment and inflation return. Maybe the market was looking for a little more. Equities start to slip with the DJ back below 24,600 and a good 150 points off the day’s highs. The USD weakens by a couple of spreads. The statement is about as dovish as you can get, which under the circumstances is to be expected. The press conference made it clear the Fed knows there is more to do and is more than willing to do it as this pandemic plays out. Back come stocks, and the DJ closes up 530 points at 24,633. The Nasdaq fairs even better up 3.5% on the day and would add to those gains after the bell with better than expected earnings from Microsoft, Tesla and Facebook. The Russell 2000 would end higher by over 4.8%. Make no mistake, effective treatments and vaccines are the way out of this mess and the markets will react to any positive developments. FX had a choppy day, but the end result was USD weakness. EURUSD would close at 1.0875, GBPUSD at 1.2465 and USDJPY at 106.70.
No, I’m not showing you a USDJPY chart for the 4th day. Today an AUDUSD chart, with the S&P plotted over the top. Australia has certainly been one of the success stories when it comes to tackling Covid-19. As you can see here there is quite the correlation between the Aussie and the S+P. But interestingly if you look closely, the AUD is a little ahead of the S&P. Draw whatever conclusion you like, but this is not a new relationship. The question is, who is leading who? Something to keep watching for sure.