Archives of “May 1, 2020” day

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ECB: Euro area GDP could shrink by 5% to 12% this year

  
  Analysis
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ECB notes in a pre-release of its economic bulletin

ECB
  • Euro area real GDP could fall by around 5% (mild scenario), 8% (medium scenario), and 12% (severe scenario) this year
  • Under the severe scenario, Q2 quarterly real GDP growth could be -15%, followed by a protracted and incomplete recovery; +6% in Q3, +3% in Q4
  • Under the severe scenario, real GDP is expected to remain well below the level observed at the end of 2019 until the end of 2022
The headline isn’t so much of a surprise since it is the same as what Lagarde has already highlighted in her press conference yesterday. This just adds more colour to it. In case you missed Lagarde’s remarks, you can check them out here and here (Q&A).

AUDJPY Shorts: Is there a balm in Gilead?

  
Analysis, Forex
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Well, sort of.

AUDJPY

After Wednesday’s initial enthusiasm for the pharmaceutical company Gilead’s COVID19 treatment, Remdesivir, the market returned back to risk off yesterday lunchtime. The ECB’s actions, or rather lack of action, left investors selling European stocks. That negative sentiment shortly flowed through into the US cash open and the previous gains were quickly replaced by yesterday’s losses. We also saw downside in copper prices, gold, silver, and platinum prices. the pitch was skewed by some pretty heavy month end flows into the JPY and the USD. However, when the dust has settled AUDJPY shorts look attractive.

Weak

The AUD is falling as US and European equity markets have fallen. As a high beta currency we can expect the AUD to lose value in line with the risk tone tilting off. As long as equity markets remain pressured then we can expect further AUD selling.

Strong

The JPY is receiving bids due to its safe haven status alongside the CHF and the USD.

Therefore, expect AUDJPY sellers on any rallies higher. The AUDJPY is at an interesting point technically. With price sitting underneath the 100EMA and in the daily gap from 06/09 March the AUDJPY has reached a natural infection point from its move higher. Stops can be places above the high of the 200EMA to limit risk and the Daily pivot point underneath at 66.00 make a fair place for a daily target.We expect this trade to play out over the next 2 or so weeks.

Gilead

Trade Risks

The main risk to this outlook:

Any positive news on COVID19 in relation to treatment/cure. Also, if Australia’s COVID case load continues to fall and this opens up Australia’s economy more quickly than others we can expect that to support the AUD.

Nikkei 225 closes lower by 2.84% at 19,619.35

  
Analysis, Global Indices

A rough day for Japanese stocks amid holidays elsewhere in Asia

Nikkei 01-05

The drop reflects the softer mood in Wall Street yesterday, and also sentiment from US futures in trading so far today. E-minis are down by about 1.4% currently.

It is very much light trading on the day, with markets in China, Hong Kong, and Singapore among those that are closed. The same will apply to most parts of Europe with only London being the notable center that is open for business in the session ahead.
In the major currencies space, the aussie and kiwi are still keeping on the defensive with the dollar trading more mixed against the rest of the bloc.
AUD/USD is down by 0.8% to 0.6460, backing further away from its 100-day moving average.

Trump considers blocking a government fund from investing in Chinese equities considered a national security risk

  
  Analysis

Bloomberg carries the report, citing an unnamed “person familiar with the internal deliberations”.

  • President is exploring blocking a government retirement fund from investing in Chinese equities considered a national security risk
  • Thrift Savings Plan — the federal government’s retirement savings fund
  • the fund is scheduled to transfer roughly $50 billion of its international fund to mirror an MSCI All Country World Index, which captures emerging markets, including China.
Offshore yuan losing ground:

Bloomberg carries the report, citing an unnamed "person familiar with the internal deliberations".

China does not seem to like Pompeo too much – “enemy of humankind”, “highly venomous”

  
Analysis, Politics

China’s State media is attacking US Secretary of State Mike Pompeo

They never have liked him much but since his comments on China and the virus, the attacks have stepped up
  • an “enemy of humankind” practicing “highly venomous” diplomacy
  • a “super-spreader” of a “political virus.”
  • “rumour monger” with a “dark mind.”
Meanwhile President Trump is back on the warpath with China:
  • Coronavirus – President Trump says China either incompetent, or let it spread
China's State media is attacking US Secretary of State Mike Pompeo
The evident tensions are not a positivfe3 for further trade talks between the two countries and are a negative for risk trades  such as AUD.
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