Despite weak numbers out of China, overnight markers are showing optimism, reports Fiona Cincotta.
European markets are set to jump on the open, as positive sentiment spills over from Asia. Talk from President Trump of the reopening of the U.S. economy plus reports of a potential treatment for Covid-19 is boosting risk sentiment and overshadowing data showing that China experienced its deepest contraction on record in Q1.
Data overnight showed the impact of the Coronavirus lock down on the world’s second largest economy. China’s economy contracted at a worse than expected 6.8% in the first three months of the year. Data also showed that retail sales continued to stall, however industrial production only dipped slightly suggesting the recovery in the sector is underway.
Under any normal circumstances these figures would send the market tumbling. However, these are clearly unusual times. Traders are instead reacting to President Trump’s talk of rolling back restrictions on business, joining a handful of other governments across the globe that are looking to gradually reopen their economies after the crippling lock down.
There is clearly a gulf between market expectations and the current underlying economic reality. However, markets are focused on what comes next rather than the here and now which goes some way to explaining why the market is rallying hours after China records a 6.8% decline in GDP.
Treatment and Vaccines
At this stage, attention is naturally turning to vaccinations and treatments for Covid-19. Reports that a Gilead Sciences (GILD) drug is producing encouraging results in clinical trials is also giving risk sentiment a lift. Any successful treatment would essentially mean that economies can reopen more quickly, good news for a rebound. Without this, any recovery is expected to be more drawn out.
Levels to watch
The DAX has jumped more than 1% on the open. It remains above it ascending trendline in a bullish chart, after briefly dipping below earlier in the week.
Immediate resistance can be seen at the April 14 high of 10830.
Support can be seen at 10520 trendline and recent low (see chart).
Fiona Cincotta is a Market Analyst for Currency Live
