The US indices rallied past 3% before reversing gains on Tuesday, and closed the session a touch below zero. The US treasury yields were offered, the US 10-year yield rebounded to 0.73% and the dollar softened.
US House Speaker Nancy Pelosi said that the US may add another $1 trillion stimulus in the mix to fight a coronavirus-induced economic slowdown.
Speaking of the virus, though the UK and New York announced their deadliest days yesterday, the number of cases slowed in these locations and elsewhere in the world. The fact that we may see a peak and a reversed trend in number of cases and deaths in most parts of the world indicates that the worst is probably behind, but it does not necessarily mean that the containment measures should be lifted too quick and too soon. As the risks prevail, the world could stay confined for couple of more months. In this respect, we could see energy and transport shares underperforming the rest for an extended period of time.
Equities in Asia traded mixed. The Nikkei (+1.21%), Kospi (+0.69%) and ASX 200 (+1.23%) advanced, as Hang Seng (-0.75%) and Shanghai’s Composite (-0.26%) traded in the red.
But one encouraging common denominator is the decline in amplitude of daily fluctuations. We start seeing signs of falling anxiety fueled by a series of recent economic data around the globe that is not as bad as analysts expected.
In Germany, the factory orders and industrial production remained resilient to the coronavirus outbreak in February. In Japan, the core machinery orders unexpectedly increased 2.3% on month to February versus a 2.7% decline expected. And in the US, the Jolts job openings fell from 7 million to 6.8 million in February, better than the 6.6 million penciled in by analysts.
But that could be misleading.
Most economies, except from China, were on the path of economic improvement at the start of this year. Hence, the February data reflects a former trend which should abruptly come to an end in March and deeper negative numbers should creep in starting from April.
Still, consolidation will likely be the major market theme in the coming months, as the expectations of cataclysmic economic figures have already been broadly priced in the asset prices worldwide and better-than-expected data is the only thing investors need to stay tuned for recovery right now. Massive fiscal and monetary stimulus packages should take effect slowly.
One major risk to the market calm this week is Thursday’s virtual meeting between Saudi and Russia. The euphoria around a potential 10 to 15 million bpd cut has been devoured so fast by the market that one questions whether a cut of this size is enough to encourage a sustainable recovery in global oil prices. WTI crude rebounded from $25 a barrel, but the positive trend appears to be losing momentum into the Thursday’s decision. While the expectation of Saudi-Russia announcing a surprise cut should put a floor under the oil’s slide, failure to satisfy the hungry traders could still trigger a sharp decline before the weekly closing bell.
There is little action in the FX markets. The EURUSD pushes for an extension toward the 1.10 mark, where bulls and bears will be fighting over the next couple of days. The positive reversal in net speculative long positions in euro hints at an improved sentiment in the single currency for the first time since September 2018. Combined with a narrowed rate differential amid the Federal Reserve’s (Fed) back to back interest rate cuts, the EURUSD has potential to consolidate and extend gains above the 1.10 level.
The pound is slightly better bid against the US dollar as the temporary leadership change amid Johnson’s journey in intensive care hasn’t led to anxiety in British politics. Still, decent offers are eyed approaching the 1.25 handle before the release a series of important economic data due Thursday.
The FTSE 100 is set for a slightly negative open on the back of a dip in oil prices.
