(18 MAY 2020)DAILY MARKET BRIEF 2:Risk-on sentiment resumes

The global risk recovery is set to pick up at the start of the week as Fed Chai Powell expressed optimism that the US growth story will improve in 2H. S&P 500 futures (1.15%) pushing up Asian equities Nikkei (0.48), Shanghai Composite (0.47%), and Kospi (0.51%) despite news that the Japanese economy had fallen into recession as Covid crisis took its toll on business and consumer spending.

With the weather improving in the western world consumer are emerging from corvid lockdown, which helps push oil prices higher on hopes (wti 5.30%) that continued output cuts, and gradual recovery in fuel demand would reduce the global supply glut.

SNB Governing Board member Andrea Maechler told Swiss newspaper Neue Zuercher Zeitung that a V-shaped recovery is unlikely for the Swiss economy. Despite negative prediction from the central bank, demand for safe-haven CHF has not diminished. EURCHF remains above the 1.0500 threshold as the SNB defends the Swiss franc with physical intervention. In other safe-haven assets, The USDJPY remains offered above the 107 level, and gold is nervously bid past $1750 per oz. Investors remain cautious on gold’s limited capacity to hedge against accelerated risk sell-off, but growing market nervousness could expose the gold’s upside potential and encourage a rise toward the $1800 mark. Bitcoin recovery bounce off the $8199 looks to test $10k in the near term.

In an interview with the Telegraph BoE chief economist And Haldane refused to reject the idea of negative interest to support the UK economy. Haldane also hinted that the BoE could follow the Fed strategy by pushing lower-quality financial assets under the central bank's bond-buying program- As expect the news further weakened the already weak pound. GBPUSD is now trading near one-.month lows at 1.2100. Break of psychological 1.2000 mark, should trigger a quick move toe September low at 1.1955 then 1.1930 March high. This significant dovish shift in the BoE’s stance could give support to British stocks near term. Yet the shadow of forgotten Brexit uncertain and rising possibly of no-deal EU divorce should continue to weigh on UK assets.

By Peter Rosenstreich