Magic 2020 We witness history with the most extreme and rare stock market selling off

23 March

Nikolas
Stylianou

Fed and ECB stimulate package to
confront coronavirus

Last week Fed
proceeded to announce some significant measures to increase the liquidity into
the market amid concerns over the coronavirus. US market was harmed a lot from
the latest news related with the impact of the virus, and many companies
suffered as they continue seeing their business collapsing even more day to
day. It was the worst week for Dow Jones industrial index, which lost almost
15%, despite the Fed efforts to provide solutions to the business through
cutting rates and purchasing in corporate bonds to help business borrow money.
US stocks rebounded slightly followed the last week Fed announcement that could
spend 1.2 trillion dollars as a stimulus package for the economy. Although the
existence of all this uncertainty around us stocks dollar index is appreciated
among other major currencies. Rising dollar serves to tighten financial conditions
in the U.S and, for international dollar, borrowers who see the cost of
repaying those loan rise. The dollar surge reflects global demand for dollars
among investors around the world, as they exit down leveraged positions across
financial markets. The rising dollar comes with the current deflationary
outlook which it’s difficult to see. The ECB or Bank of Japan agreed coordinated
intervention to strengthen their own currencies. According to new work times
Wall street it’s coming off its worst week since 2008 financial crisis. The
S&P500 fell 15% last week and analysts expecting to see further decline to
the markets despite the efforts of the central bank.

European Central
Bank announced that will spend 820 billion euros to purchase bonds and
securities in private sector to enforce the economy as the coronavirus spread
become even more threatening. Euro dramatically fell into very negative
territory against dollar last week as the virus hit hard the European stocks.
Italy announce lockdown after almost 6000 thousand cases from the virus, fact
that led the EU regulators to prohibit the short selling on stocks since the
mid of April on major indices, such as Spain, Italy and France. A volatile and
preliminary session occurred on European stocks after ECB promote major asset
purchase programs to combat the financial difficulties, with STOXX index rising
before felling again to the previous major support levels. It has been proved
that the ECB measures taken are not enough to enhance investors’ confidence, and
there is a possibility to see European stocks declining even more as we are
facing a global recession that might continue until the end of April.

US, EU & Asian Markets

Asian markets
continued falling last week alongside with the US stock market. Rather than
cutting rates or promoting a stimulus programs, China’s central bank has been
more conservative and last week kept unchanged a new benchmark lending rate,
which called the loan prime rate in March from the prior month. The PBOc has
made some targeted interest rate cuts and announced hundreds of billions of
yuan in special loans to support businesses that were hit hard from the
coronavirus. Central bank of China expects the yuan to be near 7 against the us
dollar. The officially set yuan midpoint rate has weakened more than 1.4%
against us dollar, however, has climbed more than 4.75% against an official
basket of currencies so far this year according to data from Wind Information.
The average daily spread between us and Chinese government bond yield was 172
points the last month according to China’s foreign exchange regulator, and this
makes the Chinese assets more attractive to foreign investors. Japanese yen
continue weakening against dollar despite is deemed as a safe haven instrument.

Foreign Currencies

EUR/USD is
trading around 1.07, after creating a double-bottom at 1.0635. US politicians
failed to agree on a coronavirus stimulus package, sending investors to bonds.
The dollar is falling alongside yields, while the situation in Europe is dire.
EUR/USD is trading around 1.07, after creating a double-bottom at 1.0635. US
politicians failed to agree on a coronavirus stimulus package, sending
investors to bonds. The dollar is falling alongside yields, while the situation
in Europe is dire. Australia’s government on Monday announced a second major
economic rescue package worth $66 billion, on top of an initial $17.6 billion
package, and more than $100 billion in emergency banking measures to prevent
against a credit freeze, according to The Guardian. Japanese yen continue
weakening against dollar despite is deemed as a safe haven instrument. USD/JPY
breaches 110.00, as US dollar slumps with Treasury yields and USD/JPY breached
110.00, as US dollar slumps with Treasury yields

Gold, Bonds yields and Oil Market
Plunged

Gold failed to
capitalize on the early uptick last week, despite a fresh leg down in equity
markets, while the benchmark of 10-year US bond yield jumped and generated some
fresh pressure. Falling bond prices generated an increase in bond yields, so as
the coupon rates of bonds increasing, and Federal Reserve Bank promised to
purchase billions of dollars on treasuries. As a result, bond market is more
attractive now for the investors. There is a lot of uncertainty around the
stock market, as a result we expect to see buying pressure for gold at the end
of the month. From technical view, in one hour timeframe, the gold is
performing a wedge breakout as a bullish reversal pattern and a key support
level is at 1545 per oz. If we see a break above 1540, where the gold might
find support on 200-day moving average, then this would imply a bullish
continuation to reach the level of the 1700$. WTI oil collapsed below week-long
range floor and hit new lowest since 2003, as markets continue panic selling on
fears of global recession on corona virus pandemic that already slashed demand.
Crude oil faced another horrific week, with a loss of 9% during Thursday
morning. But selling intensified throughout the session, with US oil finishing
down a stunning 24%, settling at just $20.37 a barrel. It was expected to reach
the level of $20 per barrel after the refusal of Russia of oil production cut
and the oil war with Saudi Arabia with increase in oil supply. Some analysts
predict the possibility of $5 oil price per barrel. Despite oil prices
rebounded last week on hopes of trillion of dollars stimulus package, more
shale drillers are exploring debt restructuring as WTI sinks into mid $20. The
global oil demand and gas industry slashed 3 billion from spending plans this
month, following the historic collapse in prices. The Saudi Arabia latest claim
of supplying markets with 12.3 million barrels per day for the next couple of
months cause further collapse in oil prices.

News and Expectations on global markets

Investors and analysts warn that this the
beginning of the panic and they access that the SP500 might decline further to
47%

The $30 level above is psychological and
perhaps even structural resistance, but it’s only a matter of time before we
try to get above there and reach towards the $34 level.

Fed President James Bullard cited the
possibility of a -50% GDP reading in Q2 alongside 30% unemployment.

Analysts at Goldman Sachs group predict US
economy to shrink by 4% in second quarter

Weekly News:

G20 meeting of finance ministers and
central banks governors

EUR – Markit Manufacturing PMI (Mar)

NZD – RBNZ Interest Rate Decision

USD – Nondefense Capital Goods Orders ex
Aircraft (Feb)

GBP – BoE Interest Rate Decision