Markets Rebound on Stimulus Hopes, Dollar Weakens

After an almost unprecedented rally in equity markets on Tuesday as the coordinated measures by central banks and governments are adding optimism to the economy amidst the coronavirus pandemic, major US stock indices continued pushing higher by Wednesday morning with the US 30 again inching closer towards the 21,000 threshold. With the Republican-led US Senate agreeing to President Trump’s two trillion dollar rescue bill and after days of tense negotiations between Republicans and Democrats double-digit percentage moves to the upside were almost the norm in some sectors, which were previously hit the hardest in terms of decline like the oil service company Halliburton, whose stock price jumped up by a quarter of its value after the company’s value was reduced by more than 80 percent since the start of the year.

Following these developments the dollar continued to weaken, while the US Dollar Index (USDX) remains however clearly above the 100 threshold, which it surpassed at the beginning of last week. Still, the dollar is far from being weak compared to the previous months and emerging market currencies at this time maybe have recovered a few percent but are still to a significant part valued lower than last year.

In light of the recovering equity prices and broad market recovery in the past days, oil prices also stabilized but were unable to follow the performance in equity markets. Gasoline prices on the other hand which suffered an even bigger decline over the past weeks than oil, on the other hand were able to strongly recover in terms of relative gains after trading as down by as much as 74% at earlier this week compared to the beginning of this month.

On Wednesday in Germany the IFO Survey results regarding current economic conditions and business expectation will be released. In the UK inflation data for February will be published and from the US housing market data and durable goods new orders statistics will be released.

US 30

The expected passing of further stimulus measures by lawmakers, which will include support programs with trillions of dollars pushed US stock indices with the rebound in the Dow Jones Industrial Average being called the best daily performance since 1933.

Optimism from the Trump administration, that the lockdown measures could be lifted soon and the economy get back to business as usual might have also supported positive optimism on the exchanges.

Among others Boeing shares which gained more than 20 percent on Tuesday contributed to the stellar rebound in index valuations with the company announcing that it could restart production of its grounded 737 Max series aircraft in May, while asking suppliers to be ready to ship the required parts in April. Boeing is hoping to receive a sizable amount from the bailout measures announced by the government.

It remains to be seen what impact the actual coronavirus epidemic will have on the US economy in the following days as according to data from the Johns Hopkins Univeristy the United States have now more than 55 thousand confirmed cases of coronavirus infections with New York City alone reporting 192 dead due to the sickness. If the trend continues at this pace, the United States could surpass China as the most infected country in total numbers in a very short time. 

The US 30 chart


Oil prices continued to stabilize on Tuesday and closed moderately higher, while by Wednesday morning a barrel of WTI crude oil was briefly traded even above $25. Weekly data from the American Petroleum Institute (API) indicated even a small drop in oil reserves by 1.25 million barrels compared to the previous week, despite the price war between Russia and Saudi Arabia pushed oil prices to the lowest level since the early 2000s.

Besides hopes of being part of the government stimulus package, oil industry groups like the API have been reportedly asking the Trump Administration to ease some regulations to improve the oil and natural gas industry’s ability to distribute their commodities during the coronavirus outbreak.

After OPEC+ collapsed at the beginning of the month, which brought significant difficulties for the US oil industry, which relies on relatively high oil prices to break even in their production efforts, reports indicate that Saudi Arabia and the US are discussing a new oil accord, which could help stabilize oil prices at a higher level.

On Wednesday the Energy Information Administration (EIA) is publishing its weekly crude oil, gasoline and distillate stockpile statistics.

The WTI Oil chart


Not only equity markets rallied on Tuesday, as the value of gold, silver and some other precious metals strongly recovered as gold prices gained more than ten percent compared to the low from last week and have recovered roughly 2/3 of the recent losses, which is a much higher ratio than for example the US 30 index.

A V-shaped recovery was also observed in platinum and palladium markets. However, these precious metals remain still significantly depressed compared to the high prices of last month.

In light of the significant deficit spending by governments around the world, some analysts are worried about the possibility that fiat currencies could suffer. Even analysts from Goldman Sachs are now reiterating their bullish view on gold (traded in USD) calling the precious metal “a currency of last resort”.

Still, given the significant market movements of the past days finding the right moment for either long or short positions could prove tricky to investors.

The Gold chart


A V-shaped recovery could also be observed in cryptocurrency markets over the past two weeks with the price of Bitcoin gaining roughly 74% compared to the low 12 days ago. For Bitcoin some investors are also anticipating the “halving” event due to take place some time in May, when the number of new Bitcoins entering circulation thanks to miners’ activities will be reduced by 50% from 12.5 to 6.25. Some hope that this form of diminished supply cut could positively affect the market price.

There were already two halving events, one on 2012 and one in 2016. Analysts point out that in the aftermath of the 2016 halving prices initially dropped before recovering. It should be still pointed out that this was before cryptocurrencies went mainstream and the market sentiment might have been different at that time while Bitcoin was also clearly below $1,000 at the time of both events.

The Bitcoin chart

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