Dollar lower, equities higher despite China's Q1 economic contraction

Optimistic investors ignored gloomy news of China’s economy contracting by 9.8% in Q1. Equities in Asia, Europe and US futures are all trading in the green, focusing on 1) Gilead Science reporting preliminary positive test results of its COVID-19 medicine, and 2) President Trump laying out guidelines for a three-stage reopening of the economy. The S&P500 is poised to open 2.5% higher, most overseas markets gained 2-4%. The dollar is lower on the risk-on mood in the markets, and bond yields have edged higher. Oil fell to under $18 a barrel and gold tumbled $20 to $1,698 per oz.

“There was never a night or a problem that could defeat sunrise or hope.”
Sir Bernard Williams
  • FX Rates
    April 17, 2020

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  • USD

    The dollar declined in a risk-on sentiment in the markets, fueled by positive news of a COVID-19 treatment by Gilead and Trump’s guidelines for reopening the economy. “The market is a bit optimistic right now,” David Bailin, chief investment officer at Citi Private Bank said on Bloomberg TV, adding “Ultimately we have to have really great coordination in order to see any real improvement in the economy.”


    The UK pound edged slightly higher in-line with broad US dollar weakness. Traders await next week when the latest UK economic news for March and Q1 will be released, and provide data on how the pandemic impacted the country.


    French President Macron said that urgent action is required by European governments to handle the debt troubles related to the economic slowdown in Europe. Some countries like Italy and Spain, both hard hit by the coronavirus, are having to pay more than other eurozone countries to borrow money. The euro is slightly higher, but continues to trade below $1.09.


    The USD/CAD currency pair is trading near C$1.4060 and virtually unchanged from yesterday’s close, a relatively muted response to the lower oil prices. Bank of Canada Governor Stephen Poloz said the BOC is prepared for unlimited asset purchases and stands ready to boost stimulus as needed.


    Asian emerging market equities are heading for five-week highs on the back of Trump’s reopening guidelines and Gilead’s positive progress on medicines to treat COVID-19. EM currencies have not fared as well, the MSCI EM Currency Index is only 1% off four-year lows reached March 23.

    The Japanese yen rallied despite the risk-on sentiment in the markets, and trades near the middle of its 107-108 range that has held for most of the week.

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