Market Overview

19 March 2020

Gloomy News Still Dominates but the "Bears" Are Feeling Uncertain

While almost all the world's central banks continue to flood the market fire with trillions of monetary liquidity, and currency movements are in extreme volatility, causing analogies with 2008, the information flow on the wires is still buzzing with harsh statements and forecasts which are showing first signs that the panic is not boundless and this is being reflected in the technical charts of stock indexes.


The US S&P500 stock index went down without any noticeable spike during the New York trading session on Wednesday. The prices passed on the downside road through the support level of the entire week, which had been held quite firmly since Friday. But stock prices moved to the area of 2300 and even a little lower because of inertia. The fall "skidded" all the way while looking for any chance of a rebound and partially recovered quickly. A persistent growth began in the last three hours before the trading day close and the rise had accelerated to the level of 2470. The former support area at 2380-2400 points, which has been broken down before, didn't become a new resistance and was successfully passed up twice today.


The Nasdaq100 index of a high technology segment was not able to breakthrough its weekly support at all moving synchronously down but only less than 90 points, which is not much by the standards of its recent giant movements. European stock indexes failed to rewrite their lows yesterday. If combined altogether these signs may be considered as the subtle confirmation of multiple short coverings as market "bears" are feeling uncertain at the moment. However, no one could be certain that this week has already recorded the bottom of the market. New lower points in both indexes and share prices may be seen again and again on the news of the shutdown of the production facilities, the sharp decline in consumers' activity due to the quarantine and the broadly expected gross domestic product (GDP) decrease in both the US and Europe, and almost all over the world at least until mid-summer.


JP Morgan forecasted today that the US GDP might shrink by more than 4% in Q1 and probably by 14% in Q2 of 2020. Christine Lagarde, the head of the European Central Bank (ECB), told the heads of EU states and governments that the decline in business activity may lead to a GDP contraction by five %, the Frankfurter Allgemeine Zeitung newspaper reports, citing European diplomats. Fitch rating agency warns of a possible fall in real estate prices in the United States. Harley Davidson, General Motors and Fiat Chrysler stopped production and electric car maker Tesla will reduce the number of workers per shift at a plant in California by 75%, according to Bloomberg wire. New York Stock Exchange (NYSE) has dissolved its offline "trading floor" moving completely to electronic trading. Many companies have cancelled their buyback programs that drastically support shares prices within a normal market growth cycle.


At the same time the Chinese province of Wuhan has not reported a single case of newly infected people over the past couple of days. Chinese health experts and scientists believe that the worst is over and although imported cases could be recorded in the country, China is seen to be able to eliminate this outbreak just as it once won atypical pneumonia (SARS) in 2003. This indicates the temporary nature of the events that are taking place, including the economic consequences. But central banks and governments undertake even more extraordinary financial measures every day.


Christine Lagarde announced a new 750 billion Euro plan on Wednesday saying "no limits to our commitments to the euro", and probably that means that there will be no limits on any necessary assets buying to calm the markets. "Extraordinary times require extraordinary action," she added after the late night announcement. The ECB launched a new Pandemic Emergency Purchase Program (PEPP) for the buying of any assets, and is no longer bound to by assets according to their quality or class, these include corporate bonds that did not receive high ratings

That could be even some junk papers, who knows. Everything is possible now to support the anguished segments of the economy. The ECB says that PEPP will be operational until the end of 2020. European bond prices surged at the opening today with Italian ten-year yields dropping over 100 basic points. The spreads of the core governmental bonds are narrowing, which is also a sign of relief.


The Reserve Bank of Australia has lowered its interest rates again and the monetary authorities in Brazil and South Korea did the same. Australia has also announced huge volumes of bond buying along with maintaining its interest rates of 0.25% for a long time. New Zealand's central bank has recently said that low interest rates would be maintained for many months, and Canada announced that it would further increase the volume of asset purchases. The French Finance Ministry has called on the ECB to buy even more as liquidity injections from the US Federal Reserve (Fed) last Thursday are already estimated at several trillions US Dollars. In short, everybody is "wired for sound" as almost all conceivable and even unthinkable monetary measures are already involved. It's clear now that the authorities are desperate to reverse the markets and maybe this is starting to gradually affect the locomotive of the market that has accelerated down the slope.


In order to support citizens many countries announced tax vacations or mortgage payment holidays. The French government has allowed its citizens not to pay for communal services and apartment rents, promising to compensate the expenditures directly to the communal companies and house owners so that people can sit at home and not worry about where they will get the money from to cover current payments. The White House in the US is preparing a project to distribute $1,000 to each adult citizen. In conditions of falling consumer demand it is unlikely that any move will lead to spike prices in retail shops, but the money could work for manufacturers and sellers, which may also contribute towards building the popularity of Mr. Trump. This move by the Donald Trump's administration provoked the Democratic Congress to raise the bets in the run for presidential chair this fall. The Democrats proposed the helicopter money should be increased to $2,000 per each adult and $1,000 to every child. Anyway, a part of the cash would come back to the US Treasury later in the form of corporate taxes, and the other part will be "sponsored" simply by the Treasury's "printing press". The influx of foreign money into the US bonds in recent weeks was huge and it was done with ease as enormous US public debt is being refinanced at close to zero rate. To sum up, a lot of spectacular stories are happening around us, and probably even more unordinary news will be coming soon.


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Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

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