Released this morning, the British production and growth data surprised to the upside. The industrial production slumped by 8.2% y-o-y in March versus 9.3% expected by analysts and the first quarter GDP contracted by 2% versus 2.5% penciled in. The pound shortly rebounded to 1.2280 as the fact that the poor data still beat market expectations, but gains lacked the necessary momentum to fight back the 50-day moving average resistance (1.23) on a rather blurred plan for business reopening in Britain and waning hopes of a satisfactory economic recovery in the coming months. In the UK, as elsewhere, a return to normality will take months, further ballooning the government debt and involving the central bank’s aid to make this debt absorbed by the market.
As the governments and central banks are being perfect partners in crime in most developed economies, the mood sours across the Eurozone. The appetite in single currency remains capped by the risk of the European Central Bank’s (ECB) potentially reduced ability to give a comprehensive support to the market amid the German court investigation on the extent of its policy decisions. The euro made a renewed attempt to its 50-day moving average (1.0885) against the greenback yesterday, but hit solid offers at this level. The heavy German clouds hanging on the ECB is also a factor which will likely hit the European stocks more than their US counterparts in case of a renewed panic sell-off, and similarly, hold them back if the global risk appetite improves.
Gold remains intractably near the $1700 per oz. Increased flight to safety and falling US yields give support to the yellow metal below the $1700 mark, but at the current levels, investors doubt about the gold’s hedging capacity against a renewed panic sell-off across risk assets. In case of strong market headwinds, however, we are confident that the gold price could make that jump to the $1800 level without too much hesitation.
Else, gains in oil markets remained capped as the latest API data showed that the US oil inventories rose by 7.6 million barrels last week. The more official EIA data should confirm a stronger rise in US oil inventories today and fall significantly short of the expectation of 4.1-million rise penciled in by analysts. A new jump in US oil inventories, combined with the renewed worries that the second wave of coronavirus contagion could take a toll on economic recovery prospects, should bring the oil bears in charge of the market and encourage a renewed sell-off toward the $20 mark.
