Market News
Markets continued to recover last week as some data suggested slight curve flattening in the worst affected countries in Europe. Central banks continued to provide support to the market
Review
FTSE +427 +7.89% DAX +1038 +10.91%
DOW Jones +2666 +12.67% S&P500 +301 +12.10% Nikkei +1678 +9.42%
EURUSD +1.23 +1.13% GBPUSD +0.67 +0.54% USDJPY unch
Gold +64 +3.95% UKOil -3.17 -9% USOil -5.62 -19.5%
Equities continued their risk correction as equity funds recorded a second week of inflows.
News that China was easing some of its lockdown measures added general support whilst investors responded to the positive developments in Europe and the US, the new global epicentre for the epidemic, as infection rates and mortality rates seem to be decelerating.
US equities had the best weekly performance since the Great Depression as stock markets responded positively to the start of the flattening of the epidemic curve. US indices have now rallied 25% from their lows on 23rd March. The FTSE100 has also recovered nearly 20% from its lows, whilst the Dax (GER30) has rebounded 28%.
The question remains – what will be the lasting impact on economic growth in the world’s major economies and has the market priced in the risk correctly. Clearly the persistent volatility suggests assessing the risk and pricing it into share prices is something most participants have never experience before. The implications of the pandemic and its effects are still being assessed so we would not be surprised to see another fall in global markets.
Foreign exchange markets
Forex markets remain volatile as the implication of the risk correction is felt in all sectors.
Not surprisingly the USD has remained a lightening-rod for haven buying but, like stock markets, it has seen a reversal in it’s fortunes although USD is prone to bouts of strong buying on any further signs of risk aversion.
Gold and crude oil
Gold remains a safe haven asset but has behaved in a contrarian fashion at the peak of the sell off as fund managers rushed to raise cash. More recently Gold has benefitted from the weaker USD trend.
Oil markets enjoyed a significant bounce two weeks ago following Trump’s tweet regarding an impending output cut between OPEC and Russia (referred to OPEC+). Whilst the negotiations have been protracted, OPEC and Russia eventually agreed a deal last Thursday to cut output by 10 Million barrels per day (MBd). The reaction was muted initially followed by a rapid sell-off in prices as traders doubted that the actions would be enough to offset the near collapse of a third of global oil demand. By the close on Thursday, before the Easter long weekend, oil prices had fallen 12% from their highs in response to the OPEC+ news.
The International Energy Agency (IEA) calculates global daily demand at 99.58 MBd so a reduction of 10MBd should be seen in that light. It is of course probable that US Oil production will continue to falter at these prices as the cost of production (+$50 per barrel) means all operators will be losing money and will not be investing in any more new wells until there is a significant price recovery.
At the start of this week crude oil is expected to rally modestly although analysts point out that the production cuts were from the elevated levels following the fall out between Saudi Arabia and Russia. There is also some scepticism about the deal reached as some producers have struggled to stick to agreed lower production levels in past arrangements.
Economic Diary
A light economic calendar this week in this holiday shortened week, post Easter.
As is the case these days, announcements about the pandemic and impact on economies and emergency measures taken by various governments and central banks will dominate the markets. However, we continue to provide a run down of the key data releases this week and any potential impact.
We also have the start of the US Q1 earnings season with a selection of companies releasing. These include J P Morgan Chase, Wells Fargo, Bank of America, Morgan Stanley, Goldman Sachs and Johnson and Johnson. The issue is not so much how well or badly these companies did in Q1 but what guidance they can give for the next quarter.
Monday
Bank holiday in most western economies except the US where markets are open. Markets will likely be slightly subdued although susceptible to significant moves should any news come to light.
Tuesday
China Trade balance. China’s reading on its trade balance took a big hit in the February lockdown. March numbers will paint a different picture. Not so important as the China GDP news expected Friday.
Wednesday
US Core retail sales. Falling 9ff the edge of the cliff. Just depends how high the cliff is. Panic buying ahead f the lockdown in most states probably will cushion the blow for now.
US Empire State Manufacturing Index. New York state manufacturing activity slumping. Could be worse than the dire readings in 2009 during the great Financial Crisis.
Canada Bank of Canada monthly policy meeting. No change expected following the significant cuts in March of 1.5% and the first ever launch of QE in Canada. Press conference at 4.15pm could be interesting for CAD pairs.
Thursday
US Weekly initial claims for unemployment benefits. A total of 16 million claims in three weeks is unprecedented. How bad will it get as the US endures a steady growth in coronavirus infections whilst the mortality count now puts the US at the top of the pandemic league. Expect more horrific numbers as workers are laid off in droves.
Friday
China Q1 GDP estimate. Global stock markets sensitive to this release.
As bad as some expect or will the data point to a gimmer of hope in this global powerhouse. The hit to the Chinese economy is expected to be the worst since the 1970’s. The hit was largely sustained from February into March but the question still remains by how much business activity manage to resume towards the end of March.
