US equities rebounded past 3% after the Dow closed 12.93% lower, the S&P500 and Nasdaq tumbled 11.98% and 12.32% in the worst sell-off since 1987. The Fed’s 100-basis-point cut was fully bypassed by the market. Riksbank expanded its support package by SEK 300 billion additional asset purchase and the Bank of England (BoE) said it is ready to take prompt action if needed. But what small and medium size businesses need is cash poured directly in, without passing through the financial system.
Hence, governments around the world are seeking other measures to calm down the markets’ nerves. The UK promised extra help for businesses battling the virus-led slowdown, and temporary business shutdowns. France pledged to allocate 300 billion euros of bank loans to companies hit by the pandemic. Spain banned short selling for a month to contain the heavy volatility that may cause additional damage to the financial system.
Trading in Asia was mixed. The ASX 200 bounced 5.83%, Nikkei (+0.57%) and Hang Seng (+0.75%) recorded timid gains, as stocks in South Korea (-2.38%) and Taiwan (-2.26%) continued their journey south.
FTSE (+2.46%) and DAX (+2.22%) hint that there could be a recovery at the open.
But gains we see across the board remain very fragile as stocks are running on fumes after a month of hefty collapse. And there is more to worry about, as we start seeing the impact of coronavirus outbreak via tangible economic data.
Released yesterday, the NY Empire State Manufacturing Index tanked to -21.50 in March versus +4 expected by analysts and +12.90 printed a month earlier. Producer prices in Switzerland deflated by 2.1% in February versus -1.0% released a month before. Japanese Tankan index tumbled to -20 in March from -5. Non-oil exports in Singapore decline 4.80% in February, more than -4.50% penciled in by analysts and significantly down from +4.50% printed in January.
Due today, the German ZEW economic sentiment is expected to confirm a colossal slump to -26.4 in March from 8.7 printed a month earlier. The weakness in the US dollar gives a certain support to the EURUSD parity, but decent offers are in play below the 1.12 mark. The narrowing rate differential favours a stronger euro against the US dollar in term, hence price retreats could be interesting dip-buying opportunities for strengthening core euro long positions.
In the UK, the claimant count change may have jumped to 21.4K in February from 5.5K a month earlier. This is typically a figure that should get significantly worse from next month as business shutdowns will cause thousands of additional job losses, at least in the short run. Besides, the European governments are busy fighting the coronavirus, which means that the Brexit negotiations are, and will be inevitably disrupted. So far, Boris Johnson sticks to his Brexit deadline, decreasing the probability of clinching any exit deal with the European governments. Sterling will likely remain under the pressure of no-deal Brexit anxieties at a time when it most needs the economic support of other countries, and the BoE doves. Cable could extend losses toward the 1.20 mark.
Finally, retail sales in the US are seen 0.2% higher in February versus last month’s 0.3%, but it’s a matter of time before we see the sales growth number turning negative in the US as well.
With the deluge of economic data which should confirm the heavy negative impact of the coronavirus on world economy and investors’ disinterest in monetary and fiscal measures to contain the crisis, we believe that there is a growing chance of seeing additional short-selling bans to cool off the downside pressure on the financial markets in the immediate future.