• Gold prices consolidate the previous day’s fall from eight-day top.
  • Global markets retrace Thursday’s risk aversion amid a lack of major data/events.
  • Calls of the negative Fed rate regain traders’ attention.
  • Qualitative catalysts to dominate trade sentiment, Fed rate, China and virus are the keywords to follow.

Gold bounce off $1,727.72 to $1,729.70 ahead of the Tokyo open on Friday. Even so, the yellow metal pauses Thursday’s fall from $1,744.75. While consolidation is likely a major factor behind the recent pullback in the bullion prices, calls of the negative Fed rate and vaccine trials from China seem to act as additional catalysts.

S&P 500 Futures part ways from Thursday’s downbeat performance of Wall Street. The Futures of the key US equity benchmark gains 0.35% to 3,020 by the press time after the main index slumped 5.9% the previous day. The reason for the risk barometer’s U-turn, which seems positive for the Antipodeans, could be traced from the news that a potential coronavirus (COVID-19) drug trials in China offer promising results on animals. Furthermore, increasing odds of the negative Fed rate suggest further money flow into the markets and cited the US central bank’s proactive nature to combat the pandemic.

Elsewhere, North Korea keeps alleging the US whereas Trump diplomat Mike Pompeo criticized the Turkish court’s conviction of US Consulate General employee. Additionally, news of the visa restrictions from Japan and Washington also weighs on the risk-tone.

Moving on, a light calendar could keep pushing the traders to closely analyze the news for fresh impetus. In doing so, market players may opt for geopolitical news, as well as headlines concerning the Fed, for near-term direction.

Technical analysis

The bullion’s failure to sustain the breakout of a falling trend line from May 18, currently near $1,730, speaks louder of the safe-haven metal’s weakness. As a result, the sellers might again try to break a 21-day SMA level of $1,723.80 during the fresh declines.

 

Chinese researchers who are developing a coronavirus vaccine say it showed promise in animal trials, according to a study published Saturday in the medical journal Cell as The Hill reports. 

The article states that the “potential vaccine, called BBIBP-CorV, reportedly produced antibodies that fought against the virus in monkeys, rats, guinea pigs and rabbits.”

Key notes

‘These results support the further evaluation of BBIBP-CorV in a clinical trial,’ researchers said in the paper. 

The vaccine is being developed by the Beijing Institute of Biological Products, which is a unit of the China National Pharmaceutical Group (Sinopharm). It is one of five vaccine candidates that is being tested in the country. 

 

Additionally, the article goes on to explain that there are more than 100 potential vaccines in works worldwide, about five of which are in different stages of development around the US.

Moderna, the American biotech company working on a vaccine with the National Institute of Allergy and Infectious Diseases (NIAID), announced Wednesday that it will begin the final testing stages in July. 

In its previous phase, Moderna’s vaccine showed promising results when tested on animals, much like BBIBP-CorV.

John Mascola, the director of the vaccine research center at NIAID, told The Wall Street Journal that the trials will involve about 30,000 people at more than 50 sites, which will mostly be within the US .

Market implications

Investors seeking bullish markets need some good news following a sobering 24-hours in the markets. More on this here: Biggest decline in the S&P 500 since mid-March, losers fit well with second virus wave fears

 

  • NZD/USD trades near one-week low after Thursday’s heavy fall.
  • New Zealand’s Business NZ PMI rose in May to 39.7 from 26.1.
  • The market’s previous risk-off mood seems to fade amid a lack of major catalysts.
  • Risk factors remain as the key drivers as economic calendar dwindles in offerings.

NZD/USD bounces off intraday low of 0.6405, also the lowest since June 04, to 0.6420 amid the early Asian session on Friday. While the post-Fed risk aversion printed heavy losses of the kiwi pair, the recently released second-tier data from New Zealand seems to offer breathing space to the bears near technical support.

New Zealand’s May Month Business NZ Bank PMI crosses the earlier reading of 26.1 with 39.7 seasonally adjusted figures. Other than the data, news that the Fed funds futures on some of the year 2021 contracts close with the negative implied rate for the first time in a week also favored the kiwi pair’s pullback moves. The news suggest the Fed could take measures to safeguard against the pandemic, as promised recently, which in turn may help recede the fears.

Casting minds back to the previous risk aversion wave, we could know that the Fed Chair’s gloomy mood and downbeat economic forecasts by the US Federal Reserve officials poured cold water on the face of expectations of V-shaped recovery. Also supporting the bears were the US-China and the Beijing-Canberra tension. It should also be noted that upbeat prints of the US Producer Price Index (PPI) and Jobless Claims added strength to the US dollar.

Given the market’s risk-off mood, Wall Street marked the worst day since the early-March whereas the US 10-year Treasury yields slipped further below 0.70%. Even so, S&P 500 Futures seem to stabilize around 3,022 while flashing 0.30% gains by the press time.

Considering the lack of major data, the pair traders may have to keep eyes on the geopolitical headlines for fresh impulse. Recently, US Secretary of State Mike Pompeo criticized the Turkish court’s conviction of the US Consulate General employee. Elsewhere, North Korea alleged that the US is hell-bent on exacerbating tensions.

Technical analysis

In addition to an upward sloping trend line from May 18, currently around 0.6415, the 0.6400 threshold also challenges the pair sellers. Hence, the quote’s bounce to 0.6500 can be anticipated if markets consolidate further.

 

Reuters reports that the Fed funds futures on some 2021 contracts closed with a negative implied rate for first time in a week, amid more growth gloom.

In an emergency response to the global outbreak of the new coronavirus, COVID-19, the Federal Reserve’s Federal Open Market Committee lowered the target for the Fed funds rate twice in March, taking it down by a total of 1.5 percentage points to virtually zero.

The last and only other time the Fed was that aggressive was in December 2008. 

Markets have been caught between forecasting that the Fed has either got it wrong, and that there will be a recovery and therefore rate hikes to follow, or, that the stock markets have been very wrong to this point.

The Fed has said that it is on hold until end-2022 at least and will do USD120bn a month of QE split 80bn-40bn between Treasuries and MBS. 

Investors took into account, more seriously, Fed Chair Powell’s bearish reflection on the current situation and pessimistic outlook where he described a bleak future for the US economic landscape where many millions of jobs may never come back.

Consequently, Stocks melted after the Fed ruled out a V-shaped recovery and as COVID-19 fears resurface, giving rise to more sobering market outlooks.

  • Biggest decline in the S&P 500 since mid-March, losers fit well with second virus wave fears
  • Wall Street Close: Second wave fears send benchmarks plummeting

 

 

 

The New Zealand May Month Business NZ Bank survey s/adj PMI married firmer at 39.7 vs 26.1 prior.

More to come…

Description of the Business NZ PMI

The Business NZ PMI released by the Business NZ presents business conditions in New Zealand. The Business PMI is an important indicator of the overall economic condition. A result that values above 50 signals appreciates (or is bullish) for the NZD, whereas a result that values below 50 is seen as negative (or bearish).

While responding to the Turkish court’s conviction of the US Consulate General employee, US Secretary of State Mike Pompeo said the charges levied as baseless and can harm the US-Turkey relations.

Key quotes

US is deeply troubled by the Turkish court conviction of US Consulate employee in Istanbul.

Charges are baseless.

The conviction harms US-Turkey relations.

FX implications

Given the news weigh on the Turkish Lira, USD/TRY carries the previous day’s run-up to 6.84 following the release.

  • USD/ZAR takes the bids near the highest in over a week.
  • Bullish MACD, strong U-turn from three-month low favor buyers.
  • Sellers may await fresh monthly low before entering any positions.

USD/ZAR remains on the bids around 17.23 during the early Friday morning in Asia. The quote did bounce from mid-March lows the previous day while also visiting the highest levels since June 02.

Even so, 100-bar SMA around 17.25 seems to restrict the pair’s immediate upside amid bullish MACD. Also adding to the upside barrier could be May 28 low close to 17.30.

In a case where the USD/ZAR prices can rise past-17.30, May 29 top surrounding 17.67 and 200-bar SMA level of 17.84 could lure the optimists.

Alternatively, the pair’s downside below the resistance-turned-support, currently around 16.75, will have to refresh the monthly low of 16.34 before recalling the bears.

In doing so, 16.00 round-figure and the early-March high adjacent to 15.85 should be given proper justice as supports.

USD/ZAR four-hour chart

Trend: Further recovery expected

 

  • USD/JPY fades recovery moves from 106.57 while stepping back from 106.92.
  • Global markets witness the sea of red amid economic and virus fears.
  • Japan’s Industrial Production for May will offer intermediate direction, qualitative catalysts will be the key.

USD/JPY fails to keep the pullback from one-month low while easing to 106.80 during Friday’s pre-Tokyo open trading in Asian markets. The yen pair prints five-day losing streak as risk aversion gained strength after the US Federal Reserve’s monetary policy meeting on Wednesday. Also increasing the fears were increasing coronavirus (COVID-19) numbers from some parts of the US as well as the Sino-American tension.

Fed Chair’s words matter a lot than the actions…

The Federal Open Market Committee (FOMC) turned down odds of negative rates and the Fed Chair Jerome Powell showed readiness to use unconventional policy measures to combat the virus if needed. Even so, the central banker’s fear of more job losses and a hint dimming prospects of a V-shaped recovery got major attention the previous day.

Additionally, the US and China remain at the loggerheads as China’s Global Times continues to criticize the Trump administration officials, including US President Donald Trump. In return, the US diplomats don’t step back from answering the calls as recently did by US Vice President Mike Pence. Furthermore, North Korea fired the latest shot against America alleging it to trigger more tension whereas China’s fight against Australia and the UK also offer background music to the risk aversion wave.

Amid all these catalysts, the US equity markets registered a heavy fall with key benchmarks like DJI30 and S&P 500 being the bears’ favorites. It’s worth mentioning that the US 10-year Treasury yields refreshed the monthly low under 0.70% amid market players’ rush to risk-safety.

Japan’s April month Industrial Production, expected to remain unchanged at -14.4% YoY, might offer immediate direction to the pair. However, nothing could be better than watching headlines from the US, China and also concerning the pandemic to forecast the quote’s near-term moves.

Technical analysis

April month’s low near 106.35 seems to offer immediate support to the pair ahead of May’s bottom surrounding 106.00. Meanwhile, buyers are less likely to enter unless noticing a daily close beyond 107.80/85 region comprising 21-day SMA and an ascending trend line from March 12.