The US stocks first gained 3.5%, then erased all gains and slipped to negative, and finally rallied to close the day near 5% higher, the biggest one day jump since December 2018 on hope that US President Donald Trump would deploy ‘substantial’ fiscal measures to halt the freefall in stock markets. But Trump didn’t make any appearance.
Wild US session volatility and disappointment on Trump soured the mood into the European close and sent most Asian stock indices tumbling on Wednesday.
The FTSE (-0.09%) and the DAX (-1.41%) reversed gains to end yesterday’s session in the negative territory.
The ASX 200 tanked 3.60%, Nikkei slid 2.21%, as Hang Seng gave back 0.55%.
Activity in US and European futures hint that it may be another wild ride to the bottom on Wednesday.
In such a fragile market environment, Donald Trump cannot afford to remain silent for too long. The longer he waits, the larger the damages to stock markets could be.
Still, the US 10-year yield consolidated above the 0.60% mark, WTI crude made an attempt to $36 per barrel before retracing to the $35 handle and gold traded in a $15 range above $1650 as risk-averse investors preferred piling into the yen and the Swiss franc to hedge their portfolios against another tumultuous trading session.
The EURUSD steadied near its 200-week moving average before Thursday’s European Central Bank (ECB) meeting. The ECB is expected to maintain its rates unchanged at this week’s policy meeting. Investors will rather focus on how the ECB plans to fight a coronavirus-initiated slowdown on growth and inflation. The ECB may not open Pandora’s box right away, as negative rates and monetary expansion proved to be partly efficient over the past decade. But the risks on the single currency are biased to the downside into the meeting.
On the oil deck, Russia responded to Saudi’s threat to increase production by saying that it could also boost output by 500’000 barrel per day. If the world’s biggest oil producers go down that road, the consequences for mid-term oil prices could be dramatic. Though we believe that Russia may not afford to let prices fall too much below the $30 level. While the oil recovery could continue following Monday’s 30% slide, solid offers should cap the upside near $38-$40 areas, including the major 38.2% Fibonacci retracement on February – March decline and the psychological level. For now, prospects of a growing gap between global supply and demand should continue weighing on oil prices. Price advances could be interesting opportunities for top sellers.
In the UK, the new Chancellor Rishi Sunak will reveal budget on Wednesday, and investors are hopeful that Sunak will loosen his purse’s strings. Increased spending is needed to assure a smooth Brexit transition and to fight any coronavirus related slowdown inactivity. The expectation is an expansive budget, which would also help a possible BoE rate cut to be better absorbed by the market. Activity on MPC SONIA futures suggests a 50% probability for a 25-basis-point cut at the March 26 policy meeting. We believe that the BoE has the margin for a bigger size action, but an expansive fiscal policy should result in a smaller-than-otherwise monetary action in the immediate future. Therefore, a satisfactory budget could give a positive spin to sterling by improving growth prospects and tempering the BoE doves at the same time.