By Jameel Ahmad, Global Head of Market Research and Currency Strategy at FXTM
Investors are keeping their fingers crossed as hope builds up following steps from world governments to gradually loosen lockdown restrictions which will eventually lead to a return of demand for the global economy. This has kept risk appetite kicking so far into the new trading week.
South Africa, Nigeria, New Zealand and the United Arab Emirates represent just a few of the countries that have loosened some restrictions in recent days, and the test of time on whether more countries are set to follow will determine whether the modest rally in stocks can continue.
I doubt how much more fire can be added to the flame to push markets higher – a trend investors need to keep an eye on is whether any signals suggest that positions could be closed as April concludes. Upcoming central bank decisions from the U.S. Federal Reserve, European Central Bank as well as earnings announcements from the likes of HSBC, Facebook, Samsung, Tesla and Amazon will also be viewed as event risks.
Can lightning strike twice for oil?
Investors will be unable to dismiss an element of recent history repeating itself with tanking oil prices and whether lightning could be set to strike twice. WTI has already dropped more than 12% so far on Tuesday to below $11, while Brent Crude is 5% down below $20.
It looks like fear is kicking into investor sentiment following the insane shock just a week ago that eventually led to negative U.S. oil prices and nobody wants to see the next contract expiry date follow the path of the May contracts. As a result, it appears that upcoming contracts are becoming very liquid, and investors can expect to see continued volatility.
No signs of lockdown exit strategy for Pound?
The first speech from UK Prime Minister Boris Johnson on his return to work following his battle with the coronavirus indicated to investors that life in the United Kingdom as it stands will be very much stay at home throughout May.
It was expected that we would have a cautious speech from the PM and any guidance from officials on a potential timeline for when some measures can be lifted will be viewed as a potential opportunity for a pop higher in UK assets.
Eased measures to threaten Dollar’s throne?
One trend in the currency markets that can be watched closely is what impact signs of loosened government restrictions has on demand for the USD.
The Greenback has shown signs of getting out of the wrong side of the bed so far this week with initial declines against a mixture of its counterparts, and more signs of eased lockdowns across several countries can be digested as a test ahead for King Dollar.
As well as with emerging markets, some of the other currencies that can cheer potential weakness in the USD include the Euro, Australian Dollar and British Pound.
South African assets improving, but Rand not out of the woods yet
South African assets, including its currency and stock market are aiming to strengthen as investors continue to reflect positively that the economy is set to begin a partial reopening. Improved global sentiment based on other economies providing indications that they are also gradually loosening the leash on their own lockdown restrictions would also benefit South African assets on risk appetite.
Prospects look stronger for the Rand, although there is a cautious undertone that the South African currency and assets in general are not completely out of the woods yet. However, the majority of the tornado intensity that has seen the Rand weaken more than 30% so far in 2020 has hopefully passed.
The economic calendar from South Africa for this week is mostly void of major tier-one data, although the trade balance for March is set to be announced on Thursday and it should provide insight on what impact the early stages of world lockdowns had on South African trade.
There isn’t a genie in a lamp that can be rubbed to take the last month away from memory, so there is a need for take deep breaths as economic data releases worldwide point towards the fight against the coronavirus pandemic that has threatened the worst recession in almost a century.
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