Daily reviews

30.03.2020

Global stocks saw a brief relief rally amid the unprecedented stimulus measures

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Global authorities continue to take massive measures to support the economy

  • Global authorities continue to take massive measures to support the economy
  • The U.S. Senate passed a $2-trillion disaster aid bill
  • Group of 20 major economies pledged to inject more than $5 trillion into the economy
  • The dollar came under pressure amid unprecedented stimulus measures
  • US jobless claims soared past 3 million to record amid the coronavirus outbreak
  • EURUSD jumped to the 1.1150 area, having recovered from lows around 1.0635
  • Oil prices posted a fifth straight weekly loss amid weakening demand

Asian equities
Asian shares saw a relief rally last week amid the news of major stimulus moves from global authorities, including the Reserve Bank of New Zealand, the Reserve Bank of Australia, the ECB, Canada, South Korea, India, the United States, etc. Canada’s government doubled the value of coronavirus stimulus package, the ECB delivered a new €750bn bond-buying plan, the U.S. Senate passed a $2-trillion disaster aid bill, South Korea vowed to relax FX liquidity rules for banks, while India cut rates and unleashed a $50-billion stimulus plan.

After a rise in the first half of the week, stocks in Asia were mixed on Friday due to the lingering uncertainty over the economic impact of the coronavirus outbreak. Stocks in Australia led losses among the region’s major markets as the S&P/ASX 200 dropped more than 5%. Meanwhile, In Japan, the Nikkei 225 advanced nearly 4% and the Shanghai Composite rose 0.26%. Overall, the MSCI Asia ex-Japan index rose 0.25% at the end of the week.

US equities
U.S. stocks finished sharply lower on Friday despite the approval by Congress of a $2-trillion economic stimulus package. Still, equities mostly booked decent weekly gains, having erased a chunk of losses seen earlier in the month. The sharp rebound in stocks was due partly to optimism over the U.S. fiscal stimulus plan and the aggressive monetary policy easing by the Federal Reserve and other major central banks around the globe.

The Dow Jones Industrial Average dropped 4.1%, to end at 21,636.78, while the S&P 500 index fell 3.4%, and the Nasdaq Composite Index lost 3.8%, to finish at 7,502.38. On the weekly basis, the Dow booked a 12.8% advance (the strongest since 1938), while the S&P 500 rose 10.3% for its biggest such jump since 2008, and the Nasdaq jumped over 9.0% for the week, making the biggest since March 2009.

Currencies
The dollar was hit last week after the Federal Reserve and U.S. Government opened up the floodgates to historic stimulus measures. In particular, the Fed pledged asset purchases with no limit to support markets. Meanwhile, after the initial failure of the stimulus bill to pass the U.S. Senate, the House passed the stimulus package, and President Donald Trump signed a $2 trillion coronavirus relief bill on Friday.

On the data front, flash U.S. services business activity index came in at 39.1 versus 49.4 in February while flash manufacturing PMI arrived at 49.2 versus 50.7 in the previous month. Richmond Fed manufacturing activity rose from −2 in February to 2 in March, U.S. new home sales fell in February while the previous result was revised sharply up. Philly Fed non-manufacturing survey fell from 36.1 in February to -12.8 in March. U.S. durable goods orders increase solidly before coronavirus, the FHFA house price index was up 0.3% in January. Meanwhile, jobless claims soared past 3 million to record amid the coronavirus outbreak. U.S. Consumer Sentiment neared a three-and-a-half-year low while personal consumption expenditures (PCE) price index excluding food and energy components rose 0.2% for a third straight month in February, and personal income climbed more than expected in February.

As for other news, Fed’s Bullard said that the U.S. economy might see ‘boom’ by autumn after unprecedented weakness in the second quarter. Powell noted that the central bank is not going to run out of ammunition. Bostic confirmed that the regulator remains ready to add support if needed, and Mnuchin noted that coronavirus stimulus checks will come within three weeks.

As such, EURUSD jumped to the 1.1150 area, having recovered from lows around 1.0635. The rally was mainly due to a general weakness in dollar demand as massive stimulus measures across the globe helped to ease the downside pressure on stocks and risky assets in general. GBPUSD erased losses from the previous week and got back above 1.24. The bullish momentum has faded marginally below the 1.25 handle but the pair stayed elevated due to a lower USD demand. Meanwhile, USDJPY has encountered a local resistance around 111.70 and retreated below 108.00.

Commodities
Oil prices posted a fifth straight weekly loss as weakening demand caused by the coronavirus outweighed stimulus efforts by authorities around the world. Brent crude fell about 8% on the week, as traders priced in a further decline in energy demand and higher production volumes in Saudi Arabia and Russia. On Thursday, the Group of 20 major economies pledged to inject more than $5 trillion into the global economy to limit job and income losses from the coronavirus. However, the statement did little to calm down oil traders amid the ongoing spread of the virus globally. Despite the plunge, oil prices look poised for more losses, as large are expected to significantly ramp up their production.

On the data front, U.S. commercial crude oil inventories increased by 1.6 million barrels during the week ending March 20. Gasoline inventories decreased by 1.5 million barrels and reached the five-year average for this time of year. Distillate fuel inventories decreased by 0.7 million barrels. Meanwhile, Baker Hughes reported that the number of active U.S. rigs drilling for oil dropped by 40 to 624 last week following the decline of 19 oil rigs the week before.