Market Overview

31 March 2020

Markets Are Moving Sideways Keeping to Last Week's Gains

All European and US stock indexes are still resilient to the pressure of disappointing news pretending that a lot of economic effects caused by the pandemic could be priced in already. The American S&P500 Futures that moved down to the 2450-2475 area in early Asia hours of Tuesday morning considering the extension of social isolation regimes in the United States at the federal level until April 30, were totally absorbed afterwards. The futures were testing the 2640 local resistance level near last Friday's highs, trying to keep or even to extend gains during today's European afternoon.

The French CAC 40 index is slightly behind last week's hopeful "schedule", while the German Xetra Dax index has climbed to the similar highs that were observed on Friday, above 10,000 again as German Unemployment Claims Rate for March was released unchanged at 5.0%, and the number of people out of work rose by 1,000 only to 2.267 million in seasonally adjusted terms. These figures drastically contrast with an expected rise of 29,000 claims forecasted in a Reuters poll. However, the Federal Labour Office in Germany warned that this does not reflect the escalation of pandemic crisis and its impact on the job market could be considered through to March 12 as data was collected to this date only.

It can be observed that all the effects of social isolation regimes on the labour market in European countries are still not clear while data from the US has already shown almost 3.4 million Initial Jobless Claims last Thursday, and more data will come out in the next release this week. According to a Reuters/Ipsos poll nearly one out of four people have been laid off or furloughed during the outbreak in the United States. The poll showed that 23% said they have already lost their jobs because of the virus restrictions or that their employer was forced into a temporary close down. Some economists, when asked by Reuters, expect that the US unemployment rate will surpass the 10% level, and St. Louis Federal Reserve (Fed) branch President James Bullard said it may rise as high as 30% "as companies shut down services that have "high contact" with the public".

The official St. Louis Fed projection says "the economic freeze could cost 47 million jobs... and there are nearly 67 million Americans working in jobs that are at a high risk of layoffs". But Mr Bullard also added that the hit to the economy over the coming weeks can be short term if policymakers move fast to rollout income support and other social programs. It would be realistic in this context not to rule out the possibility that such officials may give inflated estimates of possible damage to the labour market in order to lobby for larger-scale bailout measures. Anyway, we have yet to see all the effects on the economy from prolonged downtime and we can only hope for better scenarios.

The Reuters/Ipsos poll also reflected that the majority of Americans seem to reject the idea that President Donald Trump may reopen businesses by April 14. The survey indicates that 81% said the country "should continue social distancing initiatives including 'shelter at home' orders despite the impact to the economy." This includes 89% of Democrats and 70% of Republicans. Only 19% said they would like "to end social distancing as soon as possible to get the economy going again," including 11% of Democrats and 30% of Republicans. The public is still very careful and much more likely to heed medical advice when it comes from doctors or local police than from the federal authorities or the President. By the way, the recommendation of the federal authorities that states should consider gun stores as a critical business that should stay open during the quarantine also caused great controversy in social communities.

Thus, most Americans are ready to turn a blind eye to the dismantling of the economy. Probably, at least until society is more prepared to provide all appropriate medical care in serious death-threatening cases amid the national US death toll that has passed 3,000 as of March 30. The good news is that new, much needed medical equipment is starting to arrive. Ford Motor Co said on Monday that it will produce 50,000 new ventilators over the next 100 days at a plant in Michigan in cooperation with General Electric's healthcare unit, and can then manufacture 30,000 ventilators per month as needed to treat patients. Mr Trump said yesterday that officials expect a virus spike in the US around Easter and that his advisers will monitor real progress in containing the decease by the end of April.

Officials of states that were hardly hit by the pandemic have pleaded the Trump's administration and manufacturers to speed up production of ventilators to cope with a surge in patients struggling to breathe. Some hospitals in New York are using one ventilator for two patients Reuters cited sources. Ventilators built by Ford, GM and others could be used in many parts of the United States where the peak of severe cases is expected to come at a later stage.

The situation with ventilators in Europe in this regard looks much better, according to numerous reports. For example, the German government has ordered 40,000 additional ventilators and according to Chancellor Angela Merkel social isolation serves mainly to buy time to prevent a rapid influx of severe cases at one time. Official data from Italy is beginning to point to a decline in new cases of infection that gives hope for a gradual restart of the affected sectors of the economy, perhaps in May.

Different market participants tend to react in very different ways to such a set of information. Even among huge hedge funds, points of view differ. For example, experts from JP Morgan believe that the worst is over for the markets while Goldman Sachs analysts wrote that their forecast is for a high probability of further market declines in the coming weeks. Bloomberg experts poll expects the deepest economic recession in Australia for the last 90 years. It is quite possible considering that the country has not even seen two consecutive quarters of economy decline since the 90's. Despite all these negative expectations, the Aussie had a substantially recovery last week of its previous losses against the Greenback.

Everything that is happening recalls the parable about three ancient sages. One of them was sitting on the left road telling the strangers "Everything is going to be fine", another one was sitting on the right road telling all those who werepassing through that "Everything is going to be bad", and the third sage used to come to a crossroad where the left and right roads converged and repeated: "Don't listen to those two stupid sages, everything is already here and now".

The most reasonable way to assess all specific effects of these events and the reaction of real market participants may be to look thoroughly at the technical charts of the stock indexes, shares and currencies or other financial instruments in order to check our mental fantasies and to "watch" every time with current market tendencies or actual price ranges, to react on each and every new market signal according to specific trading systems and money management principles. The price movements and the charts are the only reality that is already here and now.


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