Equity markets have been very volatile today.
Europe
At the open, stocks in Europe were given a boost by the chatter that the central banks of the US, Japan as well as Australia will loosen monetary policy in a bid to raise economic sentiment, but the bullish sentiment faded mid-session. For a good chunk of the day, all the major indices were in the red, but sentiment has switched back for the FTSE 100 as well as the CAC 40 – which are now higher on the session.
Equity markets have become overly reliant on assistance from central banks since the financial crisis, and some traders are starting to question what good would lower rates actually do if more parts of the world get put on lock down.
Stocks had a terrible time last and some eurozone equity benchmarks fell to multi-months lows while the FTSE 100 fell to a level last seen in 2016, so stocks were looking cheap when trading get underway this morning. The fact that some markets are offside again highlights the weakness in sentiment.
The travel industry had a brutal run last week for fear that travel levels would slide amid the health crisis. It is the same story again as Ryanair, easyJet (LON:EZJ), International Consolidated Airlines Group (LON:ICAG), Air France as well as Lufthansa are all in the red. Lufthansa said it will suspend all flights to Iran and China until late April. Ryanair will cancel up to 25% of all flights to Italy.
Copper has rebounded despite the appealing manufacturing data from China over the weekend. The official manufacturing PMI report tumbled to its lowest level on record as did the Caixin survey of Chinese manufacturing. It is almost as if the levels were so bad that traders are expecting some sort of stimulus from the Chinese authorities. The higher copper price has helped Rio Tinto (LON:RIO), Anglo American (LON:AAL) as well as Glencore (LON:GLEN). The underlying oil market has been driven on hopes that OPEC will introduce deeper cuts in an effort to stem the falling prices. BP (LON:BP) as well as Royal Dutch Shell (LON:RDSa) are higher on the session too.
Ocado (LON:OCDO) shares are in demand today as the company said there has been ‘exceptionally high demand’ from customers on the back do the coronavirus fears. Some shoppers are worried that supermarket supplies are running low, while other are fearful about the potential health implications, so they would rather have their groceries delivered to them. Tesco (LON:TSCO), Sainsbury (LON:SBRY) as well as Morrisons shares are higher on reports of stockpiling by shoppers.
Saga have put their plans to sell Titan – a travel business, on hold on account of health emergency. The unit specialises in holidays for older clientele so given the turbulence in the travel sector you can see why the group doesn’t want to sell the group at the moment. Saga shares are in the red.
The OECD have lowered its forecast for global growth to 2.4%, down from the 2.9% projection in November.
US
Trading has been volatility on Wall Street as traders were wondering which way to turn, the Dow Jones, S&P 500 and Nasdaq are all up 1% as traders are clearly content to buy back into the markets. The bulls will be looking for a strong finish to the day as it could set up the Asian session for a positive run. The ISM manufacturing reading was disappointing as the level was 50.1, which was a drop from 50.9, but the chatter about rate cuts has taken centre stage.
Twitter shares are in demand on reports that Elliott Management, an activist investor, is pushing to oust the CEO Jack Dorsey. The investment group feel that Mr Dorsey’s attention is divided too much as he also runs Square (NYSE:SQ).
FX
The US dollar index has been hit hard again as traders are pricing in a 96% chance of a 0.75% cut later this month from the Fed. At the back end of last week, Jerome Powell, the head of the Fed, suggested the door was open to loosening monetary policy should the Fed feel it is required. There is an argument to be made that a large cut wouldn’t stimulate much economic activity but dealers are dumping the dollar on the talk of a cut.
EUR/USD has been driven higher by the sharp decline in the greenback. The major eurozone economies revealed their final readings of manufacturing PMI reports this morning, and the updates were all better-than-expected, but the Spanish update was the only one that showed expansion as the reading was 50.4. The German level was 48, so the all-important manufacturing industry is still in contraction, but it was the best reading in one year. The European Central Bank’s de Guindos claimed that fiscal policy should be used to tackle the health crisis.
GBP/USD is largely flat despite the painful drop in the US dollar. The pound remains relatively weak as dealers are concerned the UK could wind up in a no-deal scenario post the transition period. The British government claimed they would be prepared to walk away from negotiations if Brussels were not playing ball, so some traders are scared of the pound on that account. The final reading of the UK manufacturing PMI reading was 51.7 – a 10 month high but the no-deal worries are hanging over it.
Commodities
WTI plus Brent crude are up on the day because of speculation that OPEC will bring in deeper cuts to try and put a floor under the market. The energy is viewed as a good barometer for the state of the global economy. The oil producing nations will meet in Vienna later this week, so the chatter about an output reduction is likely to do the rounds for the next few days. The group might be able to prop up the energy price in the near-term, but the bulls would like to a see a change in perceptions about demand before they commit to a medium-term optimistic outlook.
Gold is higher as the fall in the US dollar combined with the volatility in stocks has ramped up demand for the asset. There is excessive chatter in the markets the Federal Reserve will aggressively lower interest rates as a reaction to the health crisis, and that has hammed the greenback, hence the upward move in the dollar-quoted metal. Gold is benefitting from the risk-off play too as dealers are fearful the global economy will get worse before it gets better.
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