Tiomarkets Daily Commentary 5 May 2020
Tuesday would see mixed headlines on our favorite market mover – Covid-19. On the positive side we are seeing decreasing death rates in Italy and Spain and a gradual re-opening of 2 of the hardest hit nations. Australia and NZ continue to open up, even proposing a safe ‘travel bubble’ between the 2. In the US, some states are opening up. Companies like Starbucks are looking to open up to 85% of domestic stores next week. The flip side is Virgin Atlantic announcing 3,100 job losses and a complete cessation of operations at its London Gatwick hub. Norwegian Cruise Lines announced it has serious concerns about its operations remaining a ‘going concern’. Warren Buffett announced he had sold all his airline holdings. Safe to say the travel and leisure sector is in for a rough wide.
Monday saw a late day boost in US equities as the US Treasury announced it would borrow up to $3 trillion in Q2. Tues would see us build on those gains in both Europe and the US. Despite some of the bleak headlines in the corporate world, traders are still keen to buy into the notion that we can bounce back and bounce back fast. Countries like Austria have reported an easing of restrictions has not seen any increase in infection rates. Positive news. Yet the UK has now overtaken Italy for the highest death toll in Europe. The main economic event of the day was the RBA rate decision which saw rates unchanged at 0.25% as expected. AUD would rally, but more a case of following equities than anything else. The most significant move of the day came in EURUSD, dropping from 1.0925 to 1.0825 on the back of a German court ruling that ECB decisions made by all member states are not valid policy in Germany. Obviously, that could have far reaching effects especially if Euro-zone nations have similar rulings. For today it was enough to sow the seed of doubt with any attempted rally being squashed. GBPUSD would fair little better after registering the new highest death toll in Europe from Covid-19. An early day rally above 1.2480 quickly petered out to end the day at 1.2440. USDJPY would be dragged around by equity market movements but would finish marginally lower at 106.50. Oil would enjoy another day of rallies, the front month US oil future up another 20% to trade at $24.30. Gold would also rally on the day ending at the highs around 1,710. Equities would give back a large chunk of their gains into the close on Wall Street with the DJ closing +133 points having been up over 300 points at one point. While traders in the US want to believe the country is going to open back up, there are nagging doubts that the approach is haphazard and may do more harm than good.
Today I have an hourly USDCAD chart doing it’s best impression of a Bitcoin chart after it went parabolic. We all know what happened next. Now I can not say USDCAD will do the same but there is definitely a line in the sand at 1.3850 and the highs are continuing to get lower. Still a bit of time for those 2 lines to continue to converge, but you feel that a sharp break one way or the other may not be far off. Keep an eye on it over the next few days.