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23.03.2020

Stocks extend losses amid the coronavirus crisis, oil at long-term lows

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Stocks rebounded on Friday after a volatile and hard week

  • Stocks rebounded on Friday after a volatile and hard week
  • The Fed cut rates to zero to support the economy amid the coronavirus outbreak
  • Global central banks announced massive stimulus measures
  • The dollar gained nearly across the board as safe-haven demand picked up
  • The Empire State manufacturing index saw a record decline in March
  • EURUSD extended losses to three-year lows around 1.0640
  • Brent crude futures tumbled to four-year lows below $25

Asian equities

Regional stocks were mostly lower for the week despite the simulative actions announced by the global central banks, including the Fed, the Bank of Japan, the Reserve Bank of New Zealand, and the Reserve Bank of Australia. Investors expressed concerns over bank liquidity and the rising probability of a deep global recession. After a volatile week, Asian stocks rose on Friday, suggesting that broad supportive measures taken by authorities across the world helped to calm investors’ nerves, at least partially.

Benchmarks in Shanghai, Hong Kong, Australia and Southeast Asia advanced during the last trading session of the week while Tokyo was closed for a holiday. Australia's central bank also cut its benchmark lending rate to 0.25%. The Shanghai Composite Index rose 0.7% to 2,702.13 while Hong Kong's Hang Seng gained 3% to 22,356.48. Central banks in Taiwan, Indonesia and the Philippines also cut their benchmark rates in order to reduce the impact of a global recession that looks increasingly likely amid the coronavirus crisis.

US equities

Wall Street ended the week on the back foot after a brief recovery on Thursday. Having declined in four of the last five weeks, the Dow Jones Industrial Average slid nearly 1000 points, ending the week with a loss of over 17%. The S&P 500 fell 4.3% and was down nearly 32% since reaching a record high in February.

Trump announced an effective closure of the U.S. border with Mexico, in line with the restriction on the Canadian border earlier in the week. Stocks futures continued to decline on Monday even after the Federal Reserve unveiled new measures to keep markets working properly. Investors remain depressed after a fiscal stimulus bill failed a key procedural Senate vote Sunday.

Currencies

The dollar gained nearly across the board as safe-haven demand picked up last week despite the Fed cut rates to zero to support the economy amid the coronavirus outbreak. At the same time, Powell said that the central bank doesn’t see negative rates as appropriate policy for the United States. Meanwhile, Fed’s Kashkari said that negative interest rates are unlikely but not off the table. U.S. President Donald Trump said the U.S. economy may be headed for a recession. In further supportive measures, the Federal Reserve announced another $500 billion operation for overnight repo funding markets and opened dollar swap lines for nine additional foreign central banks.

On the data front, the Empire State manufacturing index saw a record decline to -21.5 in March, U.S. retail sales dropped 0.5% in February, U.S. home builder confidence declined but still remained solid amid rising risks. U.S. industrial output shows strength last month, and job openings rebounded, showing labor market was strong before the coronavirus outbreak. U.S. housing starts declined while building permits arrived near a 13-year high. Philly Fed manufacturing index plunged in March, and weekly jobless claims jumped amid coronavirus layoffs, which was not a surprise for investors. The Conference Board leading economic index edged up 0.1% in February to 112.1 while existing home sales surged to a 13-year high last month.

Against this backdrop, EURUSD extended losses to three-year lows around 1.0640 after a massive decline during the previous week. Concerns over the economic and financial consequences of the coronavirus outbreak in the region, where Italy is among the hardest hit countries outside of China with more than 5,400 deaths. GBPUSD plunged to multi-year lows around 1.14 and then bounced above 1.16 by the end of the week. USDJPY meanwhile has recovered above the key moving averages and rallied to 111.50 amid a broad-based dollar demand.

Commodities

Oil prices fell for the fourth consecutive week. On Friday, Brent crude futures over 5%, to settle marginally above $27 after a dip to four-year lows around $24.50. The futures have dropped about 40% over the last two weeks, as the coronavirus outbreak has cut demand at the same time as a collapse of coordinated output cuts by the OPEC and its allies including Russia. Saudi Arabia said it would push its production to a record 12.3 million barrels per day, which put the additional selling pressure on prices. The reports that China was set to unleash trillions of yuan of fiscal stimulus to revive its domestic economy managed to ease concerns somehow.

On the data front, the U.S. Energy Information Administration said that crude inventories rose by 2 million barrels in the week ended March 13 to 453.7 million barrels. At the same time, gasoline stocks fell by 6.2 million barrels in the week to 240.82 million barrels while distillate stockpiles fell by 2.9 million barrels to 125.12 million barrels versus expectations for a 2 million-barrel drop. Meanwhile, Baker Hughes = reported that the number of active U.S. rigs drilling for oil fell by 19 to 664 last week. week.