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By: Andria Pichidi
In stock markets, JPN225 (Nikkei) closed up by 2.55%, its highest since March 5. The Hang Seng and the Shanghai Composite index also rallied, the former by over 2% and the latter by about 1%.
USA500 futures were showing a 1.8% gain, as of the early London AM session, pointing to a solid opening on Wall Street. Ongoing news of economic reopening around the world, along with cheap money, have Fed the risk-on theme, which is offsetting the rising tensions between the US and China. Hopes for a rapid development of a vaccine for the coronavirus is also in the mix, as the US firm Novavax said it has begun enrolling participants in the first human study of its vaccine, which Oxford University is now already weeks into human tests, and say its vaccine could be ready as soon as September. Also, Japan has given up on hopes of approving coronavirus treatment Avigan by end May, a COVID-19 drug being developed by Fujifilm. According to PM Abem the drug could be approved by the end of May if its safety and effectiveness could be confirmed.
Hence as risk appetite remains supported by the gradual reopening of key economies and the falling number of new Covid-19 cases in advanced economies, the concern over Hong Kong protests also continued to recede and lingering US-China tensions are pushed aside , although clearly they still have the potential to disrupt the economy once again.
As risk appetite continued to strengthen, stock market valuations are climbed further during the European session, with USA500 extending northwards after breaking 3-month peak and the round $3,000 level. After failing to break $ 2,975, three times in a row during April and May, yesterday’s close above it and today’s move further higher presents an increasing fight from bulls. The upwards bias looks to be sustained so far today, with the price action posting higher highs and higher lows intraday and momentum indicators positively configured. MACD moved further above zero line and signal line, RSI has flattened into OB zone around 70s, while fast Stochastics turned lower posting a bullish cross, suggesting that correction/consolidation might be seen in the next few hours however the overall sentiment for today is held strongly positive. The focus on the upside is on double top area back in February-March , which coincides with 76.4% Fib. levek, at $3,100. On the flipside, only a turn below $2,975 (close to PP and 2-month Resistance ) could signal a potential reversal to the downside in the short term. In the medium term Support could be seen at 20-day SMA ( $2,906).
In Europe meanwhile, stock markets continue to rally as well, with the UK100 outperforming in catch up trade and up 1.8%. The GER30 has added a further 0.7% to the more than 2% gain yesterday and IBEX and MIB are outperforming as are peripheral bond markets amid a general rise in risk appetite and of course Villeroy’s dovish comments from yesterday, which seemed to open the door to an abolition of the capital key restrictions in the PEPP program, although that would likely spark additional legal challenges. For now though it is adding to the narrowing of spreads, with the German 10-year yield up 5.1 bp at -0.447%, the Italian 10-year down -5.1 bp at 1.52%. The UK 10-year rate meanwhile is up 1.2 bp at 0.18% and U.S. rates have lifted 3.4 bp to 0.69%.
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