Stocks on Wall Street rallied well after Bernie Sanders bowed out from the Democratic nomination, whilst broad signs of a slowdown in the pace of new coronavirus cases continues to underpin the rebound. Markets liked to see the back of the self-described socialist Sanders. They also liked to see oil prices climb ahead of the OPEC meeting today and they like all the stimulus coming down the line. Meanwhile Eurogroup ministers are still talking over what to do about a joint response.
Sanders’ departure leaves President Obama’s erstwhile number two Joe Biden to run against President Trump in November. It marks an important pivot back to the centre for the Democrats, removing the tail risk of Sanders entering the White House with anti-business legislation. Wall Street was happy - the Dow Jones industrial average added almost 800 points, or 3.4%, with the S&P 500 rising a similar level, running out of steam around Tuesday’s high at 2760. The S&P 500 is now up over 20% from its Covid-19 trough.
On coronavirus, Italy’s PM Conte has said the country may relax some lockdown measures by the end of April. France has extended its nationwide shutdown through April 15th as expected. Spain’s PM Sanchez said “the fire is starting to come under control”.
Data overnight showed Japan’s machine tool orders – a closely watched leading indicator of manufacturing output – fell more than 40 per cent in March. This morning China said its imports and exports improved in March. Today we are looking at the US weekly unemployment claims count – 10m have been added the last fortnight and are forecast to print around 5.5m this week. Data showing a collapse in the workforce is not going to materially alter the course of markets – we know GDP is collapsing - it’s all about the case count: how quickly you end lockdown; and speed of economic recovery: how much stimulus efforts have worked.
Meanwhile it looks like central banks will not be in a hurry to ‘normalise’ policy – they are on side for as long as it takes. Fed minutes last night showed that most members felt interest rates ought to be left at zero “until policymakers were confident that the economy had weathered recent events”. As far as the Fed’s ballooning balance sheet, well, does anyone remember quantitative tightening? Meanwhile, the Bank of England is going to directly finance the UK government by temporarily expanding its Ways and Means facility, which will allow it to sidestep the gilt market. The thing is once you go down this route, it becomes even easier the next time, and the next time until it’s just normal.
The ECB is more concerned about what its member states are doing – failure by European finance ministers to agree on joint action would be a catastrophe. It would leave the ECB’s underpinning of financial markets a tad shaky. Eurogroup ministers reconvene today to try to hammer out a plan on a €500bn bailout fund.
European bourses this morning took the cue from Wall Street and marched higher in early trade. The FTSE 100 added 3 per cent to make a stab at the key 5800-5820 resistance area. If this goes then we could see a run through to 6200. The Euro Stoxx 50 pushed through to 2,900. We’ve got risk on with Healthcare and Telecoms the laggards, but still higher, whilst Travel & Leisure, Banks and Autos led the way higher.
Bear in mind that markets are going to be largely closed over the Easter holidays This means traders will looking at how much risk they want to hold over the weekend.
Oil is higher as we await the OPEC+ meeting with WTI trading through the $30 handle and Brent at around $35. Sources keeping talking up the prospect of a deal of 10m bpd being struck. But this is standard OPEC procedure. There is a huge risk now to the downside if the Saudis and Russians cannot come to terms. And even if they do, it won’t be enough. As previously noted, with 20-25 per cent of demand coming out of the market, there is simply not enough goodwill in the world to agree a supply deal to compensate. In March OPEC and Russia couldn’t agree on 1.5m bpd. Things have changed in terms of prices of course, but the outlook is bearish. Goldman analysts said yesterday that “…the size of the demand shock is simply too large for a coordinated supply cut, setting the stage for a severe rebalancing”. WTI could be testing $20 again soon.
Looking at E-mini futures, if we see a pullback the 2640 area on the 38.2 per cent retracement looks a good place for a rest. On the daily chart the MACD and 14-day RSI are still looking positive.
The FTSE 100 is encountering some tough resistance around 5800. On the 4hr chart the momentum indicators display divergence.
Neil Wilson is chief markets analyst at Markets.com
