European shares just posted the biggest daily gains since 2008. In Wall Street it was the biggest day since 1933!
If you’d just bought yesterday morning and closed out at the end of the day, you’d have earned what most portfolios expect to make in a good year.
The DAX index surged a massive +10.1% with the FTSE 100 up +7.5%. The indices are clawing back some of the epic losses over the past month.
Investors are buying with some pragmatic hope. The hope is that strict ‘stay home’ measures and a whole lot of government and easy money stimulus will get us through this.
Investors have been waiting for the US to take the lead on global stimulus efforts. The Fed have done their bit. It looks like lawmakers will too on Wednesday according to White House official Eric Ueland. We’re expecting a deal in the region of $ 2 trillion including every American getting cut a check.
We’re hopeful they will of course, but... Two ways it could easily all go pear-shaped is 1. The virus spread just gets out of hand and/or 2. The stimulus isn’t enough to give the economy a shot in the arm after being laid comatose in lockdown.
Trump would like to see US ‘reopen’ by Easter Sunday on April 12, which seems optimistic.
While stocks were gaining, FX markets were turning more risk on, with most currencies moving higher against the dollar, the Japanese yen and Swiss franc.
Sterling moved higher even as the UK went into full lockdown mode. The pound has been recuperating from 35-year lows ever since the Bank of England slashed rates.
If we were to turn glass half empty after such a historic gain in stock markets, it would be to focus on PMI data yesterday. March services PMIs point to recession in the UK, Europe and the US. Purchasing managers are the most pessimistic on record – but they are across most regions so it provides no relative to distinction from which to take a view on currencies.
Stock market gains have been made possible by a cool-off in the US dollar. A clamour for cash sent the USD surging. Most market watchers have said the Fed fired a ‘bazooka’ but the dollar has hardly collapsed. That leads us to think bigger problems lay down the track. If the dollar continues its rally, the Fed will be forced into even more extreme measures like helicopter money or direct FX intervention.
All the central bank bazookas are good for gold but it is at risk of getting caught in the crossfire.
What to watch today…
The US passing a stimulus bill.
G20 leaders have a teleconference call to discuss a global coordinated virus response.
US Durable Goods Orders at 12.30pm GMT
Opening calls
FTSE set to open 24 points lower at 5422
DAX set to open 34 points lower at 9666
S&P 500 to open 23 points lower at 2424
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