Daily Market Comment – Virus drug hopes, Trump reopening plan fuel optimism; dollar holds firm


Raffi Boyadjian, XM Investment Research Desk
  • Risk appetite returns on promising coronavirus drug and hope of shutdowns ending soon
  • Stocks re-energized, gold dips but dollar resilient
  • China reports first ever drop in GDP, but markets stay positive

Trump wants to reopen economy, markets like it

The mid-week souring in risk sentiment is seeing a turnaround as optimism for a way out of this virus crisis returns to the markets. After a series of data showing a collapse in key US economic indicators, ranging from retail sales to manufacturing output to housing starts, which revived fears of depression-like downturn, investors appear to have had enough of the gloom and want to focus on the positive developments.

President Trump outlined yesterday a three-step plan for states across the US to gradually ease lockdown restrictions in phases if they meet certain criteria. The new guidelines mean some states could begin relaxing the social distancing measures as early as Friday, drawing sharp criticism from the Democrats.

The possibility of an early end to the shutdowns and restarting parts of the US economy within weeks lifted Wall Street on Thursday as Trump’s proposal could mean the end of the virus nightmare for many businesses.

Further shining a ray of light for downtrodden investors were reports that the experimental drug ‘remdesivir’ by a US company for treating coronavirus patients has shown a high recovery rate in early trials. The development of a successful anti-viral drug could be a game changer for the markets as it would be key in allowing much of the lockdown measures to be removed.

Stocks fly again but China gains held down by GDP plunge

Asian stocks took their cues from the improving risk tone, with the Nikkei 225 surging by 3.2%, But it was a muted affair in China where the main indices rose by less than 1% after the country reported a bigger-than-expected fall in GDP in the first quarter. China’s economy shrunk by 6.8% year-on-year in Q1 – the first contraction since records began in 1992.

However, a much smaller than anticipated decline in industrial output in March gave rise to hopes that the worst is now over.

The mood was equally bullish in Europe with the major bourses jumping by about 3% at the open, while US stocks are on course to add to yesterday’s gains according to e-mini futures.

With not much else on the economic calendar and the new virus cases looking increasingly like they’re plateauing in more and more countries, markets are on track to end the week on a positive note.

Gold loses grip but dollar holds on tight

Gold succumbed to the market optimism, tumbling below $1,700 an ounce and moving further away from Tuesday’s 7-year top.

But the safe-haven US dollar continued to enjoy strong demand, with its index against a basket of currencies edging up by 0.1%. The yen also firmed after coming under pressure late yesterday, suggesting the risk-on sentiment is not as broad-based as it might seem.

The euro, pound and aussie all slipped against the greenback as well as the yen, though the Swiss franc was mixed.

Oil prices were also down, with WTI plummeting by 8%, unable to get a boost from Trump’s plan to restart the economy.