Weekly Market Wrap 16-20/MAR/2020

Marius Paun | London, UK | Senior dealer | Friday, 20th March 2020

World Markets plunged further despite aggressive monetary and fiscal easing policies

On Sunday evening, the US Federal Reserve cut interest rates for the second time in less than two weeks in response to coronavirus effects on the economic outlook. It was an emergency move which took the benchmark rate down by 100 basis point from 1.25% to 0.25%. In addition, the US central bank also promised to expand holdings of treasury securities by $500 billion and mortgage backed securities by $200 billion.

They coordinated with six other central banks to lower dollar liquidity swaps. Chair Jerome Powell said rates will stay low for as long as necessary and reiterated that negative rates in the US are not appropriate. On the other hand, negotiations are underway in the Congress for a stimulus package potentially worth $1 trillion which could include sending $1,000 per person in the coming weeks. Unfortunately, the US markets continued to fall sharply with Dow even dipping below 20,000 after trading above 29,000 last month.

There are optimistic signals coming from China, after the National Development and Reform Commission said the country will return to normal in the second quarter of 2020. Fingers crossed as this would, if confirmed, probably indicate that the lockdown measures have worked. Nonetheless the Chinese President Xi Jinping appeared to erring on the cautious side, saying that the virus outbreak causing havoc in the rest of the world could pose a new threat to his country, the potential for a second wave.

Bank of England has appointed a new Governor, Andrew Bailey on 16th of March. He immediately pledged unlimited loans to stop companies from going under. On top of that, the UK central bank reduced its benchmark interest rate by 15 basis points from 0.25% to 0.1% and announced it will increase quantitative easing measures.

The European Central Bank also announced on Wednesday night in an emergency move that it will start purchasing securities worth 750 billion euro. The program will apply ‘equally to families, firms, banks and governments’. The ECB President Christine Lagarde said ‘there are no limits to our commitment to the euro’ and that the central bank is ‘determined to use the full potential of our tools’. The actions could not stop the selloff in the euro which plunged steeply from 1.12 to below 1.07 against the dollar throughout this week.

Italy made headlines as the embattled country now reported its death toll has surpassed China’s figures, over 3400 as of Thursday.

Meanwhile crude oil prices surged 24% (albeit off some very low levels) after the US President Donald Trump promised he will get involved ‘in the price war at an appropriate time’. Oil prices are down over 60% with major suppliers ready to ramp up output, coupled with the downward pressure on demand due to coronavirus.

One could think that with so much extra debt added to the existing massive deficits, Gold prices would have a field day. Not so, the precious metal slumped from a high of $1575 to a low of $1451 this week. Once the outbreak is over though, gold could make a comeback with a vengeance!