26
Mar
26
Mar

US Jobless Claims, Trillion Dollar Rescue Package Expected

The dollar continued to depreciate against other major currencies while trading almost unchanged against the Japanese yen (JPY). By Thursday morning however most other currencies slightly retraced against the dollar, with some exceptions like the euro which managed to climb above the 1.09 threshold in the EUR/USD pair.

After a recovery in oil prices was seen at the start of the week, by Wednesday market close prices were almost unchanged compared to the previous day. Sizeable price movements could be observed in some precious metals, especially palladium which climbed by almost $400 per troy ounce over the course of the trading session on Wednesday.

Major stock indices continued trading higher on Wednesday as lawmakers in the US seem to be finalizing the discussions about the $2 trillion rescue bill to stabilize the economy amidst the unprecedented coronavirus pandemic. However, by Thursday morning the trend somewhat reversed with major index futures trading again in the red. In real terms the coronavirus pandemic is taking a toll also in the US with more than a thousand people succumbed to the disease and over 69 thousand confirmed infections in the US alone according to data from the Johns Hopkins University. 

While for Thursday a whole array of potentially interesting economic data can be expected, including GDP and corporate after-tax profits for the last quarter of 2019, many analysts are looking forward to seeing the release of the weekly new jobless claims figures. While over the past weeks and months the number of new jobless claims in the US was consistently in the lower two hundred thousand range, last week already an uptick was seen to 281 thousand. However, as the economic activity in sectors like entertainment and dining out is grinding to a halt, while non-e-commerce businesses are also increasingly affected, a significant increase in unemployment is expected. Only a few days ago the head of the St. Louis Federal Reserve Bank James Bullard made the dire prediction that unemployment could reach 30% in the upcoming quarter. For the State of California alone with its almost 40 million residence, reports indicate that over the past two weeks over a million people filed for unemployment benefits.

EUR/USD

The EUR/USD pair continued to rise, pushing above 1.09 as the dollar weakened. With much of the world in crisis-mode over the sweeping coronavirus pandemic nine European countries have called to issue “corona bond”, which would combine debt instruments from multiple countries of the bloc.

Reports indicate that the European Central Bank (ECB) could activate further bond purchase tools, just as was the case in 2012. According to a report by Bloomberg there could be even support for an Outright Monetary Transaction program.

The German IFO survey published on Wednesday indicated a further decline in optimism about business expectations, with results reaching 79.7 (previously 82.0).

The EUR/USD chart

Gold

Gold prices stagnated around $1,600 per troy ounce after the recent recovery, while different moves were seen in other markets. Palladium prices continued to recover gaining 21 percent on Wednesday and trading around the same level as two weeks ago.

However industry insiders report that the developments on the physical gold market could to some extent decouple from the derivative markets as people scramble to hold physical gold amidst the current uncertain environment. However movement and transport restrictions to contain the COVID-19 outbreak could be limiting the ability of gold dealers to ship physical gold.

A Reuters report also indicates that major banks and the London Bullion Market Association (LBMA) asked the CME exchange to allow the settlement of COMEX futures contracts with gold bars in London given the current disruptions in travel and transport. A significant gap between futures and spot markets prices was cited as the key reason for such a request.

The Gold chart

WTI Oil

While oil prices continue to fluctuate significantly in relative terms, the movement in absolute numbers over the past few days rather resembles the daily price shifts during calmer times like February.

Besides uncertainty about what actual impact the coronavirus pandemic will have on oil consumption in both short, medium and long term, geopolitical developments could also play a significant role in the market. Reports indicate that the US is pushing Saudi Arabia, which is effectively seen as the leader of OPEC to agree to curb production levels in coordination with the US after the discord in terms of production limits between OPEC and Russia sent prices to the lowest level since 2001. Saudi Arabia is heavily depending on higher oil prices for a balance budget, while in the US the shale oil industry is said to be unable to break even regarding production costs at current price levels.

Data from the Energy Information Administration (EIA) released on Wednesday indicated only a small build in crude oil stockpiles of 1.6 million barrels compared to the previous week, while gasoline and distillate inventories moderately declined.

The WTI Oil chart

US 500

Equity markets continued to recover on Wednesday, but by Thursday morning major future indices had to again give up some of those gains. Many are hoping that the $2 trillion stimulus program will be passed by lawmakers soon, as the pending release of new jobless claims numbers is making investors nervous as many believe the number of new claims will spike to one million or higher for the past week as measures to prevent the spread of the coronavirus are taking away the livelihood from many people in the restaurant, retail, travel, hospitality and entertainment industries.

Possibly by hopes to benefit from the stimulus bill and following the announcement that it would resume production of the 737 Max aircraft in May, Boeing (+23.4%) shares closed significantly higher for the second day in a row, at times trading up by 96% compare to the low of last week.

On the other hand shares that were seen as defensive bets during the downturn over the course of last week like Hormel Foods (-6.98%) or FedEx (-1.89%) closed lower.

Key focus could be on Thursday on the stimulus program and the release of weekly unemployment data effective for the past week.

The US 500 chart

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