Market Update: Risk Appetite Dented

Here's everything you need to know this morning.

Stocks: After the relentless rally in US tech stocks pushing Wall Street higher, the mood turned sour late in the day on Tuesday as US indices fell sharply to close near the lows. Futures then slid further. It will be interesting to see whether there will be some follow-through in the selling today. So far this morning, European indices and US index futures have only managed a weak bounce off the lows.
Sentiment turned sour as investors realised a quick re-opening of economies and resumption of normal life simply won’t happen, as was emphasised by Anthony Fauci. There were also concerns over a potential second wave of infections as a few countries that seemed to have almost defeated the virus, such as South Korea and Germany, reported new cases. Moreover, investors had the usual US-China tensions to deal with.
The NZD dropped sharply overnight in response to the RBNZ’s decision to surprisingly expand QE and as it talked up the prospects of negative interest rates. The RBNZ doubled its intended QE purchase amounts from NZ$33bn to NZ$60bn. “The Committee noted that a negative Official Cash Rate (OCR) will become an option in future, although at present financial institutions are not yet operationally ready…. It was noted that discussions with financial institutions about preparing for a negative OCR are ongoing.”
GBP struggled to find support even though this morning’s data releases were not as bad as expected though there was a big jump in the March trade deficit. GDP fell 2% q/q vs. 2.6% expected, with the monthly figure printing -5.8% vs. -7.9% eyed. Meanwhile, construction output fell 5.9% m/m and manufacturing production dropped 4.6% m/m, both beating the forecasts. Nevertheless, the GBP/USD remained on the backfoot, although the EUR/GBP eased back a little following its breakout the day before, as the EUR/USD eased back after it had popped higher yesterday.
Coming up: US Fed Chair Powell will be speaking and any suggestions that the Fed is done its policy response to Covid-19 could send the dollar higher.
With risk appetite dented, it is worth keeping an eye on the major indices, such as the FTSE, below: