Eurozone Under Pressure
Markets on Wall Street ended up relatively flat yesterday. The market was slightly positive as initial jobless claims came in at 5.2 million. This is the strange situation that we see ourselves in. The news that 5.2 million more Americans claimed unemployment benefits last week is good news. This is because it was well below last week’s figure of 6.6 million. Additionally, Eurozone inflation rate should also shed some light on the Euro’s position.
Overnight we saw the Q1 GDP reading out of China that showed on the back of the COVID-19 outbreak the Chinese economy contracted by 9.8%. The YoY figures showed a contraction of 6.8%. As well as the GDP readings, we also got the Retail Sales data for March, which painted a similarly gloomy picture. In March sales dropped by 15.8%, which was worse than the -10% expectation. However, it was much better than February’s reading of -20.5%.
Earnings have been a key driver for markets over the last week. Almost every financial institution on Wall Street reported a considerable profit hit. There are warnings that there was much pain to come for the rest of the year. Yesterday saw Morgan Stanley warn on profits but also state that trading profits had helped to ease the blow.
The trading side of the likes of Morgan Stanley, Goldman Sachs and JP Morgan have all shown gains as market volatility has led to substantial gains on corporate and government bond trading desks.
Inflation data will be the focus on the economic calendar as Eurozone readings should come out. The inflation picture is unlikely to cause too much stir for markets at this time. However, the inability of Eurozone finance ministers and leaders to agree on a significant bailout yet again brings into question the future of the single currency.
The Euro is fighting off its fourth major crisis in its 20 years history. The bloc’s failure to deal with past crisis a problem when dealing with the Coronavirus. The virus could dwarf the others in terms of its long term economic impact.
We will see the usual unwinding of positions as we head into the weekend. Due to the unknown picture of the virus, and the potential for headlines to change or worsen, investors have been unwilling to hold risk over the weekend due to the fear of market gaps. This could mean we see a degree of selling pressure towards the end of Friday’s session. However, European and US futures are currently pointing to gains on their respective opens.
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