Weekly Market Wrap 30/Mar-03/Apr/2020

Marius Paun | London, UK | Senior dealer | Friday, 03rd April 2020

World Markets Looking For Direction Amid Ongoing Coronavirus Turmoil

Late Friday on 27th March the US Congress finally approved the $2 trillion stimulus package meant to combat the economic slowdown due to coronavirus. The reaction in the markets in the final hours of trading was rather muted but Dow still posted the best weekly gains since 1938. To be more transparent, the rally happened on Monday, to a high of 22400. Since then it has given back a lot of those gains, although the market is still up on the week. Predictions for the second-quarter US GDP from the biggest American banks range from -20% to an eyewatering -38%.

The elephant in the room is the US employment. On Thursday, the initial jobless claims for the week of March 28 indicated a surge to 6.6 million versus estimates for 3.7 million. The non-farm payrolls report also painted a bleak picture, where the US economy lost 701,000 jobs in March vs expectations for a loss of 100,000 jobs, with the unemployment rate rising to 4.4%. What’s more concerning is that the survey was done mid-March so it didn’t even include the full extent of job losses. Next month’s figures need to be monitored carefully.

China’s Commerce Ministry reported on Monday that nearly all supermarkets, shopping malls, and farms have now reopened and around 80% of restaurants are back in business. At the same time, Caixin Manufacturing PMI, which focuses on small and export-oriented businesses, showed a rebound into expansion territory at 50.1 better than estimates at 45. State media also said that Chinese President Xi Jinping is keen to make sure that economic and trade activities return to normal.

Meanwhile, in the UK, Consumer Confidence data for March came in at -9 which was better than expectations for -15. The British Finance Minister announced the business loan scheme will extend to medium size businesses after banks came under fire for being rather reluctant to issue loans. Banks in the UK were also criticized for asking business owners for personal guarantees if they require a loan.

In Europe, we had a string of services PMI data coming out on Friday. Unfortunately, Italy posted some horrendous figures, even allowing for coronavirus, with the index plunging to 17.4 from 52.1 in February. The euro area members are still arguing about the plan for the issuance of a common bond (coronabond), supported by southern economies but opposed by their northern peers.

Gold prices dropped below the $1600 mark during the current week but quickly rebounded and are currently trading around $1620. One good word about silver which seems to have found good support within $14.00 – $14.50 range, which, despite the mid-week selloff in the stock markets, held its ground rather well (so far).

Crude oil prices started the week in serious trouble as they dropped in early trading on Monday to an 18 year low of $19.27 per barrel. The effects of this price action took place rather quickly. One of the stars of US shale, Whiting Petroleum filed for bankruptcy, signaling tough days ahead for an industry that employed a lot of people and assured the US of energy independence.

US President Donald Trump got involved and spoke with Russian President Vladimir Putin on Monday to discuss the attempt to bring some stability back to the energy markets. On Friday, there were rumours in the market that Russia and Saudi Arabia will agree to reduce crude production. The US oil posted some record gains on Thursday from $21.25 to $24.71 per barrel (over 16%).