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COVID-19 Drug Hopes And Rebounding Oil Supports Stocks. ECB In Focus

The FTSE is pointing to a strong start on the open as sentiment remains upbeat on signs of progress in treating coronavirus and as oil continues its advance.

Optimism continues to drive the markets this time driven by encouraging results from a COVID-19 treatment trial. Comments by Anthony Fauci, that Gilead’s antiviral remdesivir will become the standard care for coronavirus infections after early results from a trial showed that it aided a speedy recovery. Any encouraging news on COVID-19 drugs or vaccines will boost sentiment. The market is fully aware that any cure or prevention will see economies bounce back to pre-coronavirus form rapidly. Even without a cure, the market is happy to settle for control of the spread of coronavirus. With regards to the spread, we are definitely in a better place than a month ago, although it is still far to early to sing any victory song.

Oil Extends Gains

Oil prices continue to rise on Thursday, building g on big gains from the previous session amid optimism that the crude glut isn’t as bad as first thought and amid signs that fuel demand is slowing stating to pick up as states and countries ease out of lockdown. Crude for June delivery jumped 22% in the previous session and is trading an additional 13% higher in early trade on Thursday, having hit a high of $17.73 per barrel.

Whilst we still expect volatility in the oil market, there is a sense that the worst is over and that there is at least a floor in place. With countries gradually reopening, demand will continue to grind higher. The biggest risk for the price of oil would be a second wave of infections forcing countries back into lock down. Germany faces the prospect of having to restore stricter lockdown measures as its number and rate of coronavirus infections grew again. Whilst this risk remains very real we can expect to see process oscillate around these levels. Any moves to increase storage in the US, or further output cuts by OPEC could see the floor that is forming raised.

Oil Chart

Oil Chart

EZ GDP And ECB Under The Spotlight

Today is a busy day on the economic calendar with a slew of data from the eurozone due, including German retail sales, Eurozone inflation and German unemployment numbers. However, the most closely watched with be Eurozone GDP figures and the ECB monetary policy announcement.

EUR/USD is holding steady ahead of Eurozone Q1 GDP, which is forecast to reveal a -3.3% contraction, following 1% growth in Q4 2019. The data will reflect the beginning of lockdown which started in Italy in the second week of March. Recently data has had a tendency to surprise to the downside so a weaker reading could well be on the cards.

Following the failure of EU leaders to agree to an economic recovery plan for the bloc, the ball is firmly back in the ECB’s court. The ECB are expected to expand the PEPP QE program, most likely with “fallen angels” and possibly going as far as the Fed to include junk bonds. Expectations are rising high. Failure to act could drag on the Euro dragging it back towards $1.08

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