Market Overview

30 March 2020

"Opening up" the Economy Is Postponed Both in the US and in Europe


Frankly speaking, the trading week started with not the most encouraging news flow.

Following in the footsteps of the majority of European governments, which one after another extend the terms of quarantine measures, including the pre-announced extension of self-isolation in Germany until the end of April, U.S. President Donald Trump also accepted the need to prolong the quarantine measures in the U.S. through to April 30. The US death toll passed 2,400 people after deaths on Saturday surpassed the level that was recorded two days again by more than twice the amount and the total number of confirmed disease cases among the U.S. citizens almost reached 150,000, according to John Hopkins University data.

Mr. Trump speaking from the White House Rose Garden on Sunday evening said: "Nothing would be worse than declaring victory before the victory has been won." At the same time, as he added, some experts in his surroundings still expect the peak of the death rate to hit in about two weeks, and the economy could begin to recover near to June 1.

Probably, this admission was a kind of answer for much gloomier forecasts made on March 25 in The New York Times article by a group of authors. The forecasts were made in the "Opinions" section with a reference to the model of the whole group of scientists who extrapolated in some way the existing dynamics of cases. Their model claimed that if social distancing lasted just 14 days, as Donald Trump initially wanted, then the total number of infected people would reach a giant figure of 128 million by mid-summer in the United States alone. If social distancing and quarantine measures in many states could be extended for two months then the total number of infections could be just 14 million "only" according to the same model. That number is also huge, but the increase of cases could come in three consecutive waves and not in one wave if the existing measures are dropped in the middle of April 2020. This can be seen in Figure 1 below, and the authors even made a slider tool for the reader in order to investigate how the whole situation could depend on the social distancing period while moving it right or left.

Figure 1. A partial PrintScreen of the New York Times article

Source: The New York Times website

However, research methods in the NYT article titled "Trump Wants to Reopen America" can raise a lot of questions at least because they are not transparent for the general public. Dr. Anthony Fauci, director of the US National Institute of Allergy and Infectious Diseases last weekend estimated in an interview with CNN that the pandemic could cause between 100,000 and 200,000 deaths in the United States with millions of cases while the "usual" forms of flu have killed between 12,000 and 61,000 Americans a year, since 2010, according to the US Centres for Disease Control and Prevention. It would have been impossible for the White House administration to ignore all the warnings and take such risks which are dangerous for the safety of the nation and for the prospects of any future economy recovering too. Especially in conditions where there are so many examples of very watchful and circumspect European approaches.

Another terrible part of the problem is the shortage of the ventilators that are required to saturate the blood directly with oxygen when the lungs refuse to work in severe cases. "New York City will need hundreds more ventilators in a few days and more masks, gowns and other supplies by April 5," Mayor Bill de Blasio said to CNN. Donald Trump, who counted on producing a very large number of ventilators with the help of such companies as Ford, General Motors, Tesla and others, blamed General Motors in his tweet that "GM was wasting time" as action was needed to save American lives. He complained that "GM had lowered the number of ventilators they had promised to deliver from 40,000 to 6,000 and had wanted "top dollar". Trump also criticised GM chief executive Mary Barra, saying things were "always a mess" with her at the helm of the Detroit-based auto manufacture. "General Motors MUST immediately open their stupidly abandoned Lordstown plant in Ohio, or some other plant, and START MAKING VENTILATORS, NOW!!!!!! FORD, GET GOING ON VENTILATORS, FAST!!!!!!," the U.S. President tweeted last Friday.

All of this suggests a previously underestimated scale of the problem in the United States even though the number of fatalities is rapidly declining in a hotbed like Italy. The Civil Protection department there said 756 people had died over the last day, bringing the total to 10,779 - it's more than a third of all deaths from the virus worldwide. But there were 133 fewer deaths on Sunday than the 889 deaths reported on Saturday, when the numbers fell from a record high of 919 on Friday and the growth pace of infected people decrease for the last seven days, step by step. But even with the lowest tempo the total number of confirmed cases rose to 97,689 on Sunday from a previous 92,472. So, the epidemic situation in Italy, as everybody is eager to hope, maybe close to its peak, yet the quarantine measures in Italy that were due to expire on April 3 inevitably will be extended.

The dynamics of market movement is only determined now, perhaps, by the reaction to this kind of information. Against this background very few people are interested in detailed figures of even the latest March statistics on Services Sentiment in the Eurozone, or the sale of new homes somewhere in Australia.

From a formal perspective in technical charts the major stock indexes still keep their rebound vector of the previous week as we discussed the matter last Friday. However, the market's "application form" for the upside move extension could be considered valid as long as the S&P500 Futures are trading higher than the 2380-2400 support area. Those levels were tested several times in the middle of the previous week, on March 25-26, and this support area has become the baseline for a growth to 2600 level and higher on the positive wave created by $2.2 trillion bailout program in the US and the enormous efforts of many European governments to support the economy. We could not be certain that the present pandemic situation was priced enough by the market crowds beforehand, and if the hedge funds and pension funds are resilient enough to resist such heavy negative news interventions.

Goldman Sachs Global Investment Research sees the high probability of new stock markets falls. They feel better to remember just in case that in 2008, the S&P "bounced" by 9-19% six times in between of September and December (see Figure 2 below) before the real recovery was established.

Figure 2. The Goldman Sachs warns, the markets made six attempts to bounce in 2008 before the final recovery


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