Weekly Market Wrap 23-27/MAR/2020

Marius Paun | London, UK | Senior dealer | Friday, 27th March 2020

World Markets rebound but investors remain cautious

Despite starting the week on the back foot hitting ‘limit down’ in early trading on Monday, the Dow Jones Index enjoyed its best week since 1931. It rallied back from a low of 18,168 to 22,000 currently (although on Friday the bears appeared to be back in control) a rebound of over 20%. The US Federal Reserve stepped in again and pledged unlimited asset purchasing to support the markets. The commitment to money printing, the so-called quantitative easing, will not be limited to a set amount but rather open-ended, ‘expanding the balance sheet as it becomes necessary’. That marked a whole new chapter dubbed ‘QE to infinity’. In addition, the Fed also made a move for the first time into corporate bonds and exchange-traded funds.

Washington lawmakers also are in the process of agreeing to a stimulus bill in excess of $2 trillion to help Americans cope with the negative effects of coronavirus outbreak. Subject to marital status and income, US individuals could expect to receive $1,200 or $2,400 for couples. It also includes $500 per child.

Meanwhile, news from China continued to improve. Construction has resumed for 90% of major infrastructure projects. Authorities in Beijing are considering measures to boost car sales. Even the epicenter of the coronavirus outbreak, the Hubei province, restarted operations of railway stations on Wednesday. However, some challenges remain. The Financial Times reported that the People’s Bank of China is planning to announce a cut of bank deposit rate. It hopes to help banks to squeeze more profits and thus trigger a faster economic recovery.

In the UK, Prime Minister Johnson announced lockdown measures on Monday saying people should stay at home and only go out for essentials and medical reasons. Britain has seen an increase in the number of coronavirus cases and there are fears the National Health System will be put to test in the immediate future if the recent trend continues. Restrictions are put in place for three weeks and kept under constant review. FTSE100 also posted a comeback from a low of 4776 to 5500, while the sterling pound increased from a low of 1.1445 to the US dollar to 1.2300 on Friday afternoon.

In the latest news, PM Johnson and UK Health Secretary Matt Hancock both tested positive for Covid-19.

Following the ECB announcement last week of a spending package worth 750 billion euros, the German Parliament independently approved a 750 billion euro fiscal package. At the same time, the EU leaders failed to agree on Thursday on the issuance of common European Union bonds called ‘coronabonds’ with strong opposition coming from Germany, Netherlands, Austria, and Finland.

Gold prices also recovered from a low of $1451.16 to around $1620 currently on the feel-good factor in the markets following a string of fiscal and monetary measures taken around the world. Notably, the shutdown of three main gold refineries in Switzerland has triggered a physical supply crisis. Across the board, bullion dealers in London have suspended sales of physical gold. In turn, spreads of spot gold (paper trading) have gone from usually 30-40 cents to over $5 although these seemed to have reduced somewhat going into the weekend.

In line with the rest of the world markets, crude oil prices rebounded somewhat at the beginning of the week. Nonetheless, as global demand falters due to coronavirus, coupled with supply disruptions, crude prices have been put under renewed downside pressure. The US oil was trading back down around $21.30 a barrel at the time of writing.