Yesterday the attention of many traders was focused on the market's consensus reaction to the US Initial Jobless Claims statistics that measures the temperature of the economy, which has been poisoned by both the virus and the quarantine. The intrigue was further fuelled by the fact that before last Thursday, March 19, President Donald Trump directly asked statistical agencies to skip the publication of the jobs report, apparently just not to scare breathless markets. But yesterday the fresh jobless report publication was considered possible as "more human" packages of corporate bonds purchase for hundreds of billion dollars by the Federal reserve (Fed) began to encourage the invest community, complimenting the powerful quantitative easing (QE) printing press which was launched earlier. An almost ready-made agreement between the White House and the Capitol Hill on the $2-trillion bailout program for many small and big companies and direct helicopter money for Americans may have significantly sweetened the bitter pill of enormous jobless claims figures.
The move to delay the publication on new jobless claims was precisely verified by the subsequent movement of stock indexes. Markets did not waver when the number of people who applied for unemployment insurance for the first time in the past week showed as much as 3,283 billion people, a record value for the entire history of this indicator. Expert polls gave expectations that ranged from 1 million to 3.5 million people, while during a normal week the indicator may perform just a little more than 200,000 new applications. But the readiness of investors to digest the news turned out to be at a high level of tolerance. When you expect a lot of pain, the reality might not seem so gloomy. Some market participants probably took into account widely disseminated media comments that they may be only temporarily out of work and reemployed after the end of the quarantine. During this temporary situation, these employees have the right to apply for unemployment subsidies under quarantine conditions.
As a result, global stock indexes were able to develop their weekly growth, and the US Dow Jones index performed a unique more than 20-percent rise within three days, which is comparable in size only to the similar rise in 1933 from the very bottom after the Great Depression. Such analogies could be thought provoking as the technical bottom of the fall has now been reached on stock indexes and so there might be nowhere left to go than up.
However, from the point of view of strictly technical analysis, the market's request for a possible growth extension can be considered valid as long as the Dow Jones Futures with all still possible intraday downturns will hold above the support area of 20300-20500 that kept prices from stalling on March 25-26. And for the S&P500 Futures, the support area of 2380-2400 could be considered in the same role. Alternative support levels can also be calculated from the classic Fibonacci ratios at 38.2% and 50% of the full value of the rise from Monday 23 March, which has already taken place, but any steps below those levels may completely break the tentatively positive dynamics of previous days.
A potentially positive indication that might be also considered is the beginning of a strong rebound of the Euro, the British Pound, the Australian Dollar and most of the other currencies against the US Dollar that has strengthened excessively in the past. This may reflect a situation where market investors are no longer in need of so many US Dollars to plug big "holes" in their brokerage accounts.
Whether the Greenback is to weaken further or gain to the highest levels once again, or whether other currencies could at least just hold on to current higher levels and not fall back even deeper, all this would be an important test of the maturity for equity trends as well.
Fund investors in previous year of the powerful stock rally also regularly replenished their portfolios with gold contracts to "insure" against market crashes. That resulted in the rise of gold prices from $1200/toz near the end of 2018 to $1600/toz by the beginning of 2020. Gold prices topped the $1700 areas in the wake of "running from the risk" at the very start of this February just before the market crashed. But later gold manifested itself as a very risky asset as investors rushed in a across-the-boar sell-off of all gold assets. The downside movement started with the profit taking but continued shedding blood by collecting stop losses, so then the price went down to the $1450/toz area. This week the appetite for buying gold assets returned and that pushed prices above $1600/toz. This growth in gold assets has been contributed by both risk buyers and safe-haven seekers since all major currencies were diluted and dissolved by the almost unlimited money emission by most of the world's central banks due to an extraordinary situation.
The demand for physical gold at the beginning of the week was so great that the Chicago Mercantile Exchange (CME) was forced to change the rules of deliveries. CME added the London exchange to the list of suppliers which is considered as a move towards the insatiable demand. This was also the possible reason for the sharply increased spreads between buy and sell prices for gold spot contracts and gold futures contracts. If the price of gold remains supported or even soars higher to the absolute records of the year, it may be considered as a sign of a healthier stock market, and if the bullion starts to fall back into a tailspin, the stock indexes may most likely suffer too.
At the fundamental side, the brave words of G20 leaders after their phone conference on Wednesday evening and the readiness of Europeans and emerging countries to withstand the pandemic together, supported markets too. The EU authorities are almost ready to give the go-ahead for large budget expenditures of damaged countries. These expenditures are by far exceeding the present limits of the financial stability pact in Europe. The Chinese Secretary General Xi Jinping and US President Donal Trump had a warm phone call with a full understanding on the Phase One deal fulfilment delay and demonstrated a willingness to cooperate in order to control the pandemic according to the media reports both in the US and in China.
The fact that central banks and governments have already played all the possible and impossible cards and that even the best ones are on the table, spur market expectations of a possible earlier transition of the economy to the bright side are reinforced, to some extent, by the late statements about the possibility of "opening" the American economy after quarantines and shutdowns come to an end by Easter time.
Some improvement in the epidemic situation in Italy, where the number of new detected cases is still high but has been declining for the entire week, increases the chances that the majority of Americans could continue to work normally after April 13. What may cancel this scenario? In addition to the changing situation the complexity of the administrative structure of decision-making in the United States, where the president can make his own decisions and the authorities of each state are free to extend the quarantine as long as they see it is needed, could really become a sangar to the President's call to return to normal economic activity. Not to mention the expectations that the consumers themselves may not be ready to restore full-fledged activity. They will probably not restore their previous regular activity in entertainment centres, restaurants and other public places.
The House of Representatives is scheduled to have a final hearing today and a vote on the big bailout package for the US economy is due. The House's speaker Nancy Pelosi and other representatives of the Democratic wing told the media that they believe a compromise has already been found after both Republicans and Democrats in the Senate voted solidly in favour of the plan.
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