Positive news on a Covid-19 treatment and crude rally tempered by Tech Warning & Trump, reports Fiona Cincotta.
The FTSE is pointing to a strong start on the open as sentiment remains upbeat on signs of progress in treating Coronavirus and as oil continues its advance.
Optimism continues to drive the markets this time driven by encouraging results from a Covid-19 treatment trial. Comments by Anthony Fauci, that Gilead Science’s (GILD) antiviral remdesivir will become the standard care for Coronavirus infections after early results from a trial showed that it aided a speedy recovery (MoneyShow regular contributor Joe Duarte highlighted remdesivir’s potential as a Covide-19 treatment and how that would likely affect GILD’s share price).
Any encouraging news on Covid-19 drugs or vaccines will boost sentiment. The market is aware that any positive news on treatments will serve as an economic boost. Even without a cure, the market is happy to settle for control of the spread. With regards to the spread, we are definitely in a better place than a month ago, although it is still far too early to sing any victory song.
Oil extends gains
Crude oil prices continued to rise on Thursday, building g on big gains from the previous session amid optimism that the crude glut isn’t as bad as first thought and amid signs that fuel demand is slowly starting to pick up as states and countries ease out of lock down. Crude for June delivery jumped 22% in the previous session and is trading an additional 13% higher in early trade on Thursday, having hit a high of $17.73 per barrel (see chart below).
While we still expect volatility in the oil market, there is a sense that the worst is over and that there is at least a floor in place. With countries gradually reopening, demand will continue to grind higher. The biggest risk for the price of oil would be a second wave of infections forcing countries back into lock down. Germany faces the prospect of having to restore stricter lockdown measures as its number and rate of Coronavirus infections grew again. While this risk remains very real, we can expect to see process oscillate around these levels. Any moves to increase U.S. storage, or further output cuts by OPEC could see the floor that is forming raised.
Tech Warnings & Trump Threats Hit Sentiment
European stocks are taking the lead from Wall Street and Asia, pointing to a sharply lower start on the open. Sobering comments from tech giants Apple (AAPL) and Amazon (AMZN) in addition to fears of a new chapter to the U.S. China trade war are weighing on sentiment at the end of the trading week and the start of the new month, pulling equities lower and boosting the safe haven dollar.
Despite the sell off yesterday, global stocks posted their best month since 2011 in April thanks to a slowdown in Coronavirus infections, optimism surrounding the gradual reopening of economies and massive stimulus initiatives. However, data and earnings are serving as a reminder that the economic pain is really only just beginning.
Sobering comments
Apple refrained from issuing guidance for the first time in more than a decade amid growing uncertainty and poor visibility. Meanwhile Amazon reported revenue growth but also higher expenses protecting its workers and customers. Amazon warned of losses in the coming quarter. Strong results for Microsoft (MSFT), Facebook (FB) and Tesla (TSLA) limited losses of the tech heavy Nasdaq.
Trade war chapter 2
President Trump’s sharpening rhetoric against China is unnerving investors, as his team look into retaliatory measures over the Coronavirus outbreak. The China trade war seems like an eternity. However, threats of more tariffs from President Trump have hit a nerve with the markets and is adding to the downbeat sentiment heading into the weekend.
UK Manufacturing PMI
Following yesterday’s slew of disappointing figures from Europe today’s attention will turn to the UK economy with the final release of manufacturing PMI data, which is expected to come in at 32.8 in April. Whilst the manufacturing sector is holding up better than the service sector, it is still in a plain awful position. And things could get significantly worse with an industry body warning that British factory output was at risk of halving in the second quarter, as 80% of manufacturers reported a collapse in orders owing to the coronavirus outbreak.
The British pound (GBP) is already trending lower in anticipation of dire data, despite Boris Johnson promising to announce the UK’s exit strategy from lock down next week.
US Manufacturing
US ISM manufacturing PMI is expected to drop sharply in April after holding up near the 50 threshold in March. This forward looking survey will provide the first hint of what’s to come in next week’s non-farm payroll report.
Fiona Cincotta is a Market Analyst for Currency Live
