Recovery efforts fading and further capitulation threats

Intermediate
  • The more aggressive, global spread of the coronavirus outside of China in early March has further increased concerns regarding a pandemic, notably with the spread of the virus in Europe and the US.
  • The more aggressive spread in Italy, and the lockdown this weekend of 15 provinces in the country has highlighted the potential risks for other European countries, with the number of cases increasing throughout major European economic centres.
Italy lockdown - coronavirus
  • In addition, outbreaks in the US, notably in Seattle and New York have seen fears growing there, with a state of emergency declared in New York.
  • Panic buying of various goods (hand sanitizer, disinfectant and toilet rolls) has been seen across the globe, further reflecting and intensifying fears amongst the wider population.
  • The financial authorities have attempted to intervene to stabilise financial markets with equity markets in freefall at the end of February.
  • The Reserve Bank of Australia (RBA) cut interest rates 25bps at their meeting on Tuesday, with the Bank of Canada (BoC) cutting 50bps on Wednesday.
  • The more aggressive move, however, came from the Federal Reserve on Tuesday, when they cut 0.50% intermeeting, after a teleconference amongst G7 finance ministers and central bankers.
  • Other central banks including the European Central Bank (ECB), the Bank of Japan (BoJ) and Bank of England (BoE) have indicated potential for monetary policy interventions too.
  • Rumour and anticipation in the run up to these rate cuts, and straight after the Fed rate cut, saw global stock averages attempting to recover and base.
  • In addition, the success of Joe Biden on Super Tuesday, the US Democratic Presidential Primaries, also added to the positive tone for stock averages.
  • However, growing fears regarding the global coronavirus spread quickly resumed at the end of last week, with European equity indices making new bear move lows, to multi-month or multi-year lows.
  • The major US equity averages are poised just above the late February troughs, which will be under pressures to start this seek.
  • Bond markets have seen aggressive moves higher, with the US 10yr yield plunging to a record low through 1.00% and even moving sub 0.70% on Friday.
  • On the Forex side, the US Dollar mains the ugly sister across major currencies, with the expectation of still lower interest rates from the Fed eroding the interest rate supremacy of the US currency.
  • USDJPY has plunged, whilst EURUSD soars.
USDJPY
  • On the commodity front, we had the OPEC Meeting Thursday and Friday, where larger output cuts were delivered,
  • But the oil price continues to push lower, given fears of a significant global economic slowdown.
  • For Gold, the ultimate safe haven, a strong rally has been seen as would be expected, particularly with the US Dollar weakening too. The threat for Gold is still higher prices, maybe towards $1800 and even $1900 into March.
Gold highest since 2013
  • Data has been mixed int the past week, with very poor Chinese Purchasing Managers Index (PMI) data, but solid global PMI data.
  • Whilst the US Employment reports showed a huge beat in the number of jobs added, with the Non-Farm Payroll (NFP) data coming in significantly above expectations. But markets were unimpressed, hardly even reacting!

Key this week

  • Data regarding the international spread of and deaths from the coronavirus will remain the market focus into this week, and likely through March.
  • Central Bank activity – Thursday: European Central Bank (ECB) meeting and interest rate decision.
  • Data remains somewhat irrelevant and the data stream this week is relatively light
Date Key Macroeconomic Events
09/03/20 German Industrial Production
10/03/20 Chinese Consumer Price Index (CPI); Euro Zone Gross Domestic Product (GDP) and Employment
11/03/20 UK Manufacturing and Industrial Production; US Consumer Price Index (CPI)
12/03/20 ECB interest rate meeting and decision
13/03/20 German CPI; US Michigan Consumer Sentiment Index

Editor in chief

Steve Miley has 29 years of financial market experience and as a seasoned expert now has many responsibilities. He is the founder, Director and Primary Analyst at The Market Chartist, the Editor-in...continued

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