05 June 2020

Rally In European Stocks Take A Pause After ECB Boosts Stimulus

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News shaping
the markets today

     

What’s happening: European stocks fell on Thursday despite the ECB’s (European Central Bank) announcement of a massive coronavirus stimulus program.

What happened: The Eurozone’s central bank increased the size of its PEPP (Pandemic Emergency Purchase Programme) by €600 billion, much higher than the consensus estimate of €500 billion. This adds to the bank’s bond purchases of €750 billion announced in March.

The expansion did not prove enough to extend the week’s rally in European equities, with investor sentiment being hit by ECB President Christine Lagarde’s disappointing comments.

Why it matters: Despite the planned bond buying of €1.35 trillion to combat the region’s worst economic crisis since World War II, investor sentiment and day trading in indices were hit by ECB President’s comments of the Eurozone facing an “unprecedented contraction” this year. The central bank said it now expects the region’s economy to shrink 8.7% in 2020. The projections indicate 5.2% and 3.3% growth in 2021 and 2022, respectively. The latest forecasts were much lower than the bank’s projections issued earlier in March.

The pan-European Stoxx 600 index dropped 0.72% yesterday, with all sectors trading lower and ending the day in the negative zone. Auto stocks were the worst performers, declining 1.7%.

Financial stocks exhibited some resistance after the ECB’s decision on Thursday, with Spain’s BBVA and Banco Santander adding around 1.5% during Thursday’s session. London’s FTSE 100 dropped 0.64%, while the French 40 index slipped 0.21% yesterday.

Hammerson’s stock plunged more than 14% with investors taking profit after the week’s rally, as the company announced plans to reopen its flagship sites from June 15. Bucking the trend, shares of Lookers spiked 15% after the car dealership chain announced plans to cut up to 1,500 jobs.

US equities also closed mostly lower following disappointing jobs data. Initial jobless claims came in at 1.877 million last week, slightly higher than the 1.8 million projections by economists.

What to watch: Traders await a basket of economic reports from various countries in Europe, including Germany’s factory orders, UK’s house price index, Italy’s retail sales and Spain’s industrial production and consumer confidence indicator. Stock index futures may remain volatile just ahead of these reports. Germany’s new factory orders, which dropped 15.6% in March, are expected to tumble another 19.7% in April. The UK Halifax house price index is projected to rise 2.8% in May, following April’s 2.7% increase.

Investors will continue to focus on coronavirus numbers, with total cases climbing to 6,601,340 globally. Brazil, which has the highest daily cases, confirmed around 584,010 infections, while cases in Britain reached 283,070.

The Markets Today

     

Crude oil will be in focus today, ahead of the decision around production cuts by the OPEC+ (Organization of the Petroleum Exporting Countries and its major allies).

Context: Crude oil closed higher on Thursday, rising for the third straight session on hopes of the OPEC+ extending production cuts. With Russia and Saudi Arabia already agreeing to extend the cuts, the OPEC is looking at the non-compliant nations to increase their share of production cuts.

Details: Although the OPEC+ group is yet to announce a new date for its meeting, speculations were sparked by a Reuters report saying that the cartel is likely to hold a meeting this weekend to decide on extending the current output cuts.

Saudi Arabia and Russia have already announced their intent to increase their output cuts of 9.7 million bpd (barrels per day) till July. However, their extension is dependent on countries like Iraq and Nigeria complying with current measures to cut their supplies.

WTI (West Texas Intermediate) crude for July delivery rose 0.3% to end at $37.41 a barrel on the NYMEX (New York Mercantile Exchange), after falling as low as $36.38 earlier in the session.

Global benchmark Brent for August rose 0.5% to settle at $39.99 per barrel on the ICE Futures Europe, posting gains for six straight sessions. Both WTI and Brent crude closed at their highest levels since March 6.

Meanwhile, July natural gas rose 0.05% at $1.822 per million British thermal units.

What to watch: Traders eagerly await any announcement by the OPEC+ related to meeting dates and the extension of output cuts, which could support oil prices. Traders also look forward to the Baker Hughes report on oil rigs.

Other Markets: US indices closed mostly lower on Thursday, with the S&P 500 and Nasdaq 100 down by 0.34% and 0.69%, respectively, while the Dow Jones index rose slightly by 0.05%.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

South Africa’s foreign exchange reserves, SACCI business confidence index and consumer confidence, Mexico’s gross fixed investment, car production and auto exports, India’s deposit growth, foreign exchange reserves and bank loan growth, Brazil’s car production and new vehicle registrations, Russia’s inflation rate and foreign exchange reserves, Turkey’s treasury cash balance, Canada’s employment change, unemployment rate and Ivey PMI as well as the US nonfarm payrolls, unemployment rate and consumer credit.

 

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