Tuesday, 31 March 2020

US stocks rise even as COVID-19 death toll surpasses 3,000

Markets were mixed on Monday, with stocks rising in the US and Europe but falling in Asia.

The S&P 500 surged 3.4 percent after President Donald Trump said on Sunday that he had extended social-distancing guidelines through 30 April and that the US would be “well on our way to recovery” by early June.

However, analysts at Goldman Sachs suggested that for the stock market to hit a bottom, among other things, the spread of COVID-19 must begin to slow.

Instead, the toll from COVID-19 in the US has continued to rise dramatically, hitting 3,008 deaths and more than 160,000 confirmed infections on Monday evening.

“Tactically, however, we believe it is likely that the market will turn lower in the coming weeks, and caution investors against chasing this rally,” the Goldman analysts said.

Meanwhile, in Italy, the COVID-19 death toll rose by 812 on Monday to 11,591, the most in the world, but the number of new cases rose by 4,050, the lowest since 17 March.

Monday, 30 March 2020

S&P 500 jumps with COVID-19 cases

Investors received some respite last week from the gloom that had pervaded markets recently.

The S&P 500 rose 10.3 percent last week even as the US became the country with the highest number of confirmed COVID-19 cases in the world.

As of Sunday evening, there were more than 137,000 cases and at least 2,400 deaths from the disease.

Dr Anthony Fauci of the National Institute of Allergy and Infectious Diseases said on CNN on Sunday that, based on modelling, 100,000 or more could die from the disease in the US.

Meanwhile, despite having a smaller population than the US, the number of cases in Italy hit 97,689 on Sunday. It also has 10,779 deaths from the disease, the highest in the world.

The good news, though, is that the daily rise in infections has slowed to 5.6 per cent, the lowest rate since Italian officials started tracking cases following the first death on 21 February.

There is no sense of complacency though in the Italian government. "The measures expiring on Apr 3 will inevitably be extended," said regional affairs minister Francesco Boccia, referring to the lockdown.

Saturday, 28 March 2020

Markets fall, US COVID-19 cases pass 100,000

Markets were mostly lower on Friday.

The S&P 500 tumbled 3.4 percent and the STOXX Europe 600 fell 3.3 percent. However, the Nikkei 225 jumped 3.9 percent.

“Economic data is deteriorating quickly, and we still have few signs on just how severe the economic impact will be,” said Lindsey Bell, chief investment strategist at Ally Invest.

“The bottom line is that the recovery from this crisis will be a lot slower than consensus expects,” said Andrea Cicione, head of strategy at TS Lombard.

Oil prices plunged. West Texas Intermediate crude fell 4.8 percent and Brent fell 5.4 percent.

“According to industry reports, oil storage levels globally have already reached 75% of capacity, and continued stockpiling under closed demand would crash the prices to $10 in the coming months unless industrial activity restarts,” said Mihir Kapadia, chief executive offer of Sun Global Investments.

Global economic activity could take some time to pick up again, though, with COVID-19 cases still rising in many countries. In the US, the number of confirmed cases passed 100,000 on Friday while Italy recorded 919 deaths from the virus, the highest daily toll in the world, as its total of confirmed cases rose by 5,959 to 86,498, surpassing China's.

Friday, 27 March 2020

Markets shrug off record jobless claims as US tops COVID-19 cases

Markets were mostly higher on Thursday.

The S&P 500 surged 6.2 percent and the STOXX Europe 600 jumped 2.6 percent. However, the Nikkei 225 tumbled 4.5 percent.

US stocks were boosted by the passage late Wednesday of an emergency relief package intended to help mitigate the impact of the COVID-19 pandemic. That helped investors shrug off a record 3.28 million in claims for unemployment benefits last week.

“Investors cheered the impressive global policy response, but today’s data have them knowing the battle is daunting,” said economist David Rosenberg in a note.

Indeed, latest data from Johns Hopkins University show that the US now has the highest number of confirmed COVID-19 cases in the world, surpassing Italy and China.

Still, Paul Tudor Jones, founder of Tudor Investment and Just Capital, told CNBC on Thursday that the market could be higher by June.

“My guess is one of the reasons the market’s up right now is because of all the month-end rebalancing,” said Jones. “That’s one reason my guess is we’ll stay firm into month-end and then we’ll be challenged in April.”

“My guess is we’ll be higher three or four months from now, five months from now, than lower than where we are right now,” he added.

Thursday, 26 March 2020

Markets rise on hopes for US fiscal package

Markets rose on Wednesday.

The S&P 500 rose 1.2 percent, the STOXX Europe 600 jumped 3.1 percent and the Nikkei 225 surged 8.0 percent.

Optimism over the passage of a fiscal package in the US provided a boost to markets.

“The coronavirus spread is intensifying in the US, but some optimism is growing that it could peak in a few weeks and right now traders are primarily focused on all this stimulus,” wrote Edward Moya, senior market analyst at Oanda.

James McCann, senior global economist at Aberdeen Standard Investments, called the fiscal package “huge” and said “it should hopefully act as a firewall to slow the spread of this crisis through the economy and prevent it from seizing up the financial system”.

Still, the COVID-19 pandemic remains a global threat, with Italy's death toll increasing by 683 on Wednesday and Spain's by 738. Italy and Spain now have the world's highest and second highest death tolls from the disease.

Wednesday, 25 March 2020

Markets surge, “getting dangerous to be negative on equities”

Markets soared on Tuesday.

The S&P 500 surged 9.4 percent, the STOXX Europe 600 jumped 8.4 percent and the Nikkei 225 rose 7.1 percent.

Sam Stovall, chief investment officer at CFRA Research, said that “this market was stretched like a rubber band that, at least in the near term, was ready to snap back”.

Investors appear hopeful that the US Congress will be able to agree on a fiscal package soon to mitigate the impact of the COVID-19 pandemic even as President Donald Trump raised the idea of restarting the economy soon.

Indeed, with all the monetary and fiscal stimulus initiated or planned, JonesTrading’s chief market strategist Michael O’Rourke warned that “it is getting dangerous to be negative on equities at these levels”.

“Nobody should be surprised if the next moment of panic leads to a special purpose vehicle to buy stocks and equity ETFs,” O’Rourke said. “While the long-term ramifications of these measures are dangerous, the short-term liquidity will be strong. If there was ever a time not to fight the Fed, this is it.”

Tuesday, 24 March 2020

Markets tumble despite “powerful” Fed action

Markets fell sharply on Monday.

The S&P 500 fell 2.9 percent and the STOXX Europe 600 sank 4.3 percent.

Earlier in Asia, the Shanghai Composite tumbled 3.1 percent and the BSE Sensex plunged 13.2 percent but the Nikkei 225 rose 2.0 percent.

Markets fell despite the Federal Reserve launching yet more measures to mitigate the impact of the COVID-19 pandemic. It announced on Monday that it would purchase an unlimited amount of Treasuries and mortgage-backed securities, as needed, to support smooth market functioning and effective transmission of monetary policy. It also launched and expanded several emergency lending facilities to prop up markets for corporate credit, municipal debt and asset-backed securities.

Oliver Blackbourn, multi-asset portfolio manager at Janus Henderson, said that while the latest Fed action “sends a powerful signal to markets”, it also “felt like it could be the final policy move from a central bank that now has few cards left to play by itself”.

Still, James Sullivan, head of Asia ex-Japan equity research at JP Morgan, said that this could be “one of the sharpest, but also on our numbers at least, one of the shortest global downturns that we’ve seen in the history of markets”.

“We would be selectively adding to exposure here,” he said.

Similarly, hedge-fund manager David Tepper said that it might be “time to buy a little”. Although stocks could still fall by another 10 to 15 percent, they “look really interesting for the long term”.

In contrast, Scott Minerd, global chief investment officer at Guggenheim Partners, said that “‘buying the dip’ on the expectation that Congress is going to pass something soon is probably not a prudent investment strategy”.

Anthony Scaramucci, founder and managing partner at investing firm SkyBridge, told CNBC that while an economic stimulus package could provide a short term boost for markets, he is less optimistic for the long term.

“We’re in a protracted bear market,” Scaramucci said. “I’ve told people, this is so much worse than the global financial crisis. It’s literally 9/11 plus the global financial crisis.”

Monday, 23 March 2020

US stock futures fall as markets face “worst crisis since the Great Depression”

US stocks suffered their biggest one-week decline since the financial crisis in 2008, with the S&P 500 dropping more than 13 percent, and it looks like they will get off to a weak start this week.

US stock futures opened sharply lower on Sunday night, with the Dow Jones Industrial Average futures falling more than 900 points, or 5 percent, to hit their “limit down” level. S&P 500 and Nasdaq 100 futures were also down around 5 percent.

In the US, more than 30,000 cases have now been confirmed, with the number of cases in New York state having hit 15,168 over the weekend, more than in France or South Korea.

Indeed, Kelsey Piper and Christina Animashaun at Vox had suggested last week that the path of the COVID-19 outbreak in the US is following the same path as that in Italy, where the number of deaths from the virus has now hit 5,476, more than any other country in the world.

“[T]he US and most European countries are seeing early coronavirus growth numbers that look like the ones from Italy. Our confirmed cases are increasing at about the rate theirs did. That gives us every reason to think our health systems will eventually be overwhelmed like theirs were, unless we take strong measures sooner than they did,” they wrote.

A recession in the US is now widely expected, with Goldman Sachs in particular warning that the economy will decline at a 24 percent rate in the second quarter.

“Things will get worse before they get better and the markets will continue to reflect that reality,” said Marc Chaikin, CEO of Chaikin Analytics.

“This is an unprecedented situation, this is worse than 2008, this is worse than 1987, this is the worst crisis to hit financial markets since the Great Depression,” said Stephen Isaacs, chairman of Alvine Capital Management’s investment committee.

Saturday, 21 March 2020

Markets mixed, Italy and Spain report highest one-day death tolls

Markets were mixed on Friday.

The STOXX Europe 600 jumped 1.8 percent and the Shanghai Composite rose 1.6 percent.

However, the S&P 500 plunged 4.3 percent as the number of confirmed COVID-19 cases in the US rose to more than 14,000 with over 200 deaths.

Oil prices plunged. West Texas Intermediate sank 11.1 percent and Brent fell 5.2 percent.

“We think that it is too early to say with any degree of certainty that markets have found a bottom, to be honest. We remain of the view that markets will only stabilize when there are signs that the pandemic is being brought under control,” said Simona Gambarini, markets economist at Capital Economics in London.

There is no sign that the pandemic is being brought under control, at least in Europe.

Italy on Friday announced 5,986 new cases and a record 627 new deaths, raising the totals to 47,021 infections and 4,032 fatalities. Italy's death toll from the coronavirus had overtaken China's on Thursday.

In Spain, the death toll rose to 1,002, a highest-ever increase of 235 in 24 hours.

Friday, 20 March 2020

Stocks mixed, oil surges amid more central bank action

Markets were mixed on Thursday.

Early in the day, Asian stocks fell. The KOSPI plunged 8.4 percent while the Nikkei 225 and Shanghai Composite both fell 1.0 percent.

However, the S&P 500 rose 0.5 percent and the STOXX Europe 600 surged 2.9 percent.

Oil prices surged. West Texas Intermediate crude jumped 23.8 percent and Brent rose 14.4 percent.

An announcement by the Federal Reserve early Thursday of the opening of additional, temporary dollar swap lines with other central banks as well as interest rate cuts and new asset purchase programmes by the Bank of England and European Central Bank helped shore up markets even as the number of cases of COVID-19 infections rose above 10,000 in the US on Thursday.

JP Morgan now forecasts a global recession in 2020. China's economy will shrink by 40 percent between January and March compared to the previous quarter, the biggest contraction recorded over the past 50 years at least, while US GDP will shrink at an annualised rate of 14 percent in the second quarter.

Thursday, 19 March 2020

Markets plunge, economy “probably already in recession”

Markets fell on Wednesday.

The S&P 500 plunged 5.2 percent, the STOXX Europe 600 tumbled 3.9 percent and the Shanghai Composite fell 1.8 percent.

Oil prices also plunged. West Texas Intermediate crude sank 24.4 percent and Brent fell 14.1 percent.

“I think we’re probably already in a recession. I don’t see any avoiding that on either side of the Atlantic,” said Cameron Brandt, director of research at fund flow data provider EPFR.

Indeed, some analysts see more pain ahead for financial markets and the economy.

Mike O’Rourke, chief market strategist at financial brokerage JonesTrading, described the current situation as “Bearmageddon”.

Bearmageddon is described as a situation when the economy rolls over at a time of “maximum level” of easy monetary policy, while asset values like stocks are still expensive. “That combination of events becomes toxic because investors begin to express concern that the [Federal Reserve’s] monetary policy has become impotent,” O’Rourke wrote in a note.

This was highlighted by the stock market's sharp fall on Monday despite the Fed's announcement of an emergency interest rate cut and quantitative easing the day before.

Yves Lamoureux, president of macroeconomic research firm Lamoureux & Co, sees a series of rolling bear markets ahead.

“I think after 10 years of being on steroids, I’d say this market is very fragile,” said Lamoureux. “The virus was the needle that pricked the bubble.”

Scott Minerd, global chief investment officer at Guggenheim Investments, argued that the US needs a large fund -- upward of US$2 trillion -- to rescue businesses from failure.

Otherwise, the economy faces “the possibility of a downward spiral into something akin to a global recession”.

Late on Wednesday, the US Congress passed the first of two planned bills providing some relief from the economic damage resulting from the coronavirus pandemic while the European Central Bank launched a new, expanded programme to buy financial assets.

Wednesday, 18 March 2020

US and European stocks rise but “markets basically are broken”

Markets were mostly higher on Tuesday.

The S&P 500 surged 6.0 percent and the STOXX Europe 600 jumped 2.3 percent. However, the Shanghai Composite slipped 0.3 percent.

Plans by the US and Spanish governments to mitigate the effects of the COVID-19 pandemic with fiscal measures helped support markets.

However, David Rosenberg, chief economist and strategist of Rosenberg Research, warned of more volatility ahead. “Who knows about the next couple of days,” he said. “The markets basically are broken.”

Tuesday, 17 March 2020

Markets plunge as investors “unconvinced” by central bank actions

Markets fell sharply again on Monday.

The S&P 500 plunged 12.0 percent, the STOXX Europe 600 tumbled 4.9 percent and the Nikkei 225 sank 2.5 percent.

Measures taken by the Federal Reserve on Sunday and other global central banks on Monday to mitigate the impact of the COVID-19 pandemic failed to ease investor concerns.

“While we expect to see more major central banks cut interest rates further in a bid to support growth...there are limits to how low they can go,” Fitch Solutions said in a note on Monday.

Selena Ling, head of treasury research and strategy at OCBC Bank, said that “market players remain unconvinced that monetary policy easing and liquidity injections will solve an essentially healthcare crisis”.

Monday, 16 March 2020

Fed slashes rates and launches QE in “panicky” move

The Federal Reserve made another emergency move on Sunday.

Saying that “the coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States”, the Fed cut its fed funds rate to 0-0.25 percent from 1-1.25 percent and launched a US$700 billion quantitative easing programme.

However, initial market response was negative. S&P 500 futures plunged by its daily 5 percent limit on Sunday night.

“The Fed has thrown most its weight behind this move, offering almost everything it has to give, which raises the inevitable question — if this doesn’t work, what will?” said Seema Shah, chief strategist at Principal Global Investors.

“When you have folks in power acting in a very panicky way, doing off-scheduled meetings and throwing everything they can at the situation, that doesn’t send a very reassuring signal to the general population,” said Max Gokhman, head of asset allocation at Pacific Life Fund Advisors.

Saturday, 14 March 2020

Markets rebound, “time to start adding to equity risk“

Markets mostly rebounded on Friday.

The S&P 500 surged 9.3 percent and the STOXX Europe 600 jumped 1.4 percent.

Asian stocks were mostly lower though. The Nikkei 225 plunged 6.1 percent while the Shanghai Composite fell 1.2 percent.

Investors were encouraged by US President Donald Trump's declaration of a national emergency, freeing US$50 billion to tackle the COVID-19 pandemic.

While economists are seeing an increased likelihood of a recession, many think that markets could be close to a bottom.

“If it indeed is declared a recession, it will really only be a three-month drop in activity,” said Barry Knapp, Ironsides Macroeconomics director of research.

“I don’t think this is a prolonged sort of downturn,” said Lori Calvasina, chief US equities strategist at RBC.

“We are now trading slightly below our downside case on the S&P 500 and believe it is time to start adding to equity risk for longer term investors,” analysts led by Michael Wilson, Morgan Stanley’s chief US equity strategist, wrote in a Thursday note.

Friday, 13 March 2020

Markets crash, “economic damage going to last”

Markets crashed on Thursday.

The S&P 500 plummeted 9.5 percent, its worst day since 1987. The STOXX Europe 600 plunged 11.5 percent, its worst day on record. Earlier in Asia, the Nikkei 225 sank 4.4 percent while the S&P/ASX 200 plunged 7.4 percent.

Oil prices plunged, with Brent crude falling 7 percent amid travel restrictions and a price war between OPEC and Russia.

An announcement by the Federal Reserve that it will ramp up its overnight funding operations and add purchases of US Treasury notes and bonds “to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak” failed to stem the declines.

“I have never seen moves like this in 35 years of trading,” Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities, said of the disruptions. “At this point, the market will get absolutely exhausted.”

Meanwhile, the global economy may be going into recession, according to Mohamed El-Erian, chief economic advisor at Allianz.

“We are going into a global recession” El-Erian said. “The economic damage is going to last.”

Thursday, 12 March 2020

Dow falls into bear territory as COVID-19 outbreak declared a pandemic

Markets fell on Wednesday as the World Health Organisation declared that the COVID-19 outbreak is a pandemic.

US stocks plunged. The Dow Jones Jones Industrial Average sank 5.9 percent, plunging it into bear market territory, while the S&P 500 fell 4.9 percent.

Elsewhere, the STOXX Europe 600 fell 0.7 percent and the Nikkei 225 tumbled 2.3 percent.

European markets were supported by an emergency rate cut by the Bank of England but some analysts are unimpressed by the move.

“If we are now trying to encourage people to stay at home and not travel, what on Earth is a rate cut supposed to do?,” said Jim O’Neill, chair at UK thinktank Chatham House.

Indeed, Deutsche Bank Securities’ chief economist Torsten Slok thinks it is “too early to put risk on”, adding that “the policy response is not quite being there yet”.

Similarly, Invesco’s chief global market strategist Kristina Hooper told CNBC on Wednesday: “I don’t think we’ve hit a bottom yet.”

“What could cause a bottom, could be a powerful catalyst for stocks to move up, of course, is if we actually get appropriate fiscal policy,” she said.

David Kostin, Goldman’s chief equity strategist, appears to be confident that that will come.

“By year-end, economic and earnings growth will be accelerating, the fed funds rate will be at the zero lower bound, and the impact of any fiscal stimulus will be flowing through to consumers. Under this scenario, equities will appear attractive relative to bonds and cash,” he said.

Wednesday, 11 March 2020

Markets rebound but “more downside to come”

Most markets partially rebounded on Tuesday from the sharp falls on Monday.

The S&P 500 surged 4.9 percent and the Shanghai Composite jumped 1.8 percent. However, the STOXX Europe 600 fell 1.1 percent.

“This volatility is gonna stay in place until we see the back side of this virus and I don’t think we can say that yet, especially in the United States and that’s the bellwether for the world when it comes to the stock market,” said Mark Matthews, a managing director and head of research Asia at Bank Julius Baer.

“Traders are a bit nervy, the only positive news we’ve been getting out is probably rate cuts or tax cuts - we need news in terms of the actual control of the virus, which we don’t seem to be having right now,” said Michael Baker, analyst at ETX Capital.

“My personal view is that there’s still some more downside to come, largely due to the fact that we don’t have good data on the extent of the virus in the US,” said Donald Calcagni, chief investment officer with Mercer Advisors.

Tuesday, 10 March 2020

Markets plunge, to remain “treacherous” for a while

Markets plunged on Monday.

The S&P 500 sank 7.6 percent, the STOXX Europe 600 tumbled 7.4 percent and the Nikkei 225 fell 5.1 percent.

Adding to market concerns over the continuing spread of the COVID-19 virus, oil prices plunged on Monday after the collapse of talks led to a price war between OPEC and Russia. West Texas Intermediate crude plunged 25 percent while Brent tumbled 24 percent.

The US 10-year Treasury yield briefly touched an all-time low of 0.318 percent.

“The shock to oil compounds what the coronavirus is doing to the global economy,” said Andrea Cicione, head of strategy at TS Lombard.

Economic data compounded the worries.

Chinese trade data released over the weekend showed that the country’s January-February overseas shipments contracted 17.2 percent from the same period a year before.

On Monday, Japan reported that its economy shrank at an annualised rate of 7.1 percent in the October-December quarter, worse than the preliminary estimate of 6.3 percent.

“This is going to be treacherous for a while,” said Mohamed El-Erian on CNBC on Monday. “I would advise most retail investors to stay on the sidelines, not panic. There will be opportunities but they’re not now.”

Monday, 9 March 2020

Stocks endure volatile week as COVID-19 spreads globally

Stocks endured a volatile week last week.

The S&P 500 rose 0.6 percent but fell on three days by at least 1.7 percent that were offset by two days of gains of over 4 percent.

Markets fell as the COVID-19 coronavirus outbreak continued to spread globally, having now killed nearly 3,792 people and infected more than 109,000 in 99 countries and territories.

Italy now has the highest number of confirmed cases and deaths from the coronavirus outside China. On Sunday, the death count in Italy nearly tripled from 133 to 366 and infections rose by a single-day record of 1,492 to hit 7,375.

Iran reported 49 new deaths, its highest toll for a single 24-hour period, taking the number of fatalities there to 194. The number of confirmed cases is 6,566.

China, though, reported just 44 new cases, the lowest in weeks.

Saturday, 7 March 2020

Markets tumble as worst of COVID-19 “not yet behind us”

Markets fell sharply on Friday.

The S&P 500 tumbled 1.7 percent, the STOXX Europe 600 plunged 3.7 percent and the Nikkei 225 sank 2.7 percent.

Oil prices plunged. West Texas Intermediate crude fell 10.1 percent and Brent fell 9.4 percent.

A strong US jobs report could not overcome market concerns over the COVID-19 outbreak as cases surged over 100,000 globally.

“The worst is not yet behind us because it still feels like we’re in the early spread phase in many countries,” said Craig Erlam, Senior Market Analyst at Oanda. “If we’re seeing policymakers providing stimulus, it suggests that even they believe there could be some significant damage.”

“We disagree with central bank pronouncements that there is room to fight the crisis.” wrote George Saravelos, Deutsche Bank’s head of global head of currency research, in a research note.

Some, though, suggested that strong US economic data should help it avoid recession.

“I still believe we can get through this year without a recession,” said Dallas Fed President Rob Kaplan.

Friday, 6 March 2020

Markets fall, “high probability of recession”

Markets were mostly lower on Thursday.

The S&P 500 plunged 3.4 percent to 3,023.94 and the STOXX Europe 600 tumbled 1.4 percent.

The COVID-19 remained the primary concern of investors as the total number of cases worldwide shot past 95,000.

Jim Bianco of Bianco Research thinks the S&P 500 could fall to 2,500.

Bianco said that “there's a high probability that we're going to have a recession either in the first or second quarter because of economic disruptions coming”.

Thursday, 5 March 2020

Markets rise as IMF lowers global growth forecast

Markets rose on Wednesday.

The S&P 500 surged 4.2 percent, the STOXX Europe 600 jumped 1.4 percent and the Shanghai Composite rose 0.6 percent.

Markets rallied even as the International Monetary Fund’s managing director Kristalina Georgieva said that global economic growth in 2020 could dip below the 2.9 percent estimate in 2019 as a result of the COVID-19 outbreak. The IMF had previously forecast 3.3 percent growth for this year.

Indeed, economic reports on Wednesday pointed to significant negative impact already from the coronavirus.

The Caixin/Markit China services PMI plunged to 26.5 in February, the lowest on record, from 51.8 in January.

The Federal Reserve's latest beige book report noted that there were “indications that the coronavirus was negatively impacting travel and tourism in the U.S.” and that “some supply chain delays were reported as a result of the coronavirus and several Districts said that producers feared further disruptions in the coming weeks”.

Wednesday, 4 March 2020

Markets mixed as US stocks plunge despite Fed rate cut

Markets saw very mixed performances on Tuesday.

The S&P 500 plunged 2.8 percent but the STOXX Europe 600 jumped 1.4 percent.

Asian stocks were mixed. The Shanghai Composite rose 0.7 percent but the Nikkei 225 tumbled 1.2 percent.

US stocks fell despite an emergency inter-meeting cut in the fed funds rate by a half percentage point by the Federal Reserve.

“The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity,” the Fed said in a statement.

“Monetary policy is an unlikely cure for the coronavirus,” said Mike LaBella, head of investment strategy at QS Investors.

While some analysts think that fiscal policy is also needed, James McCormack, global head of sovereign ratings at Fitch Ratings, said that “G7 public finances are consistently among the weakest relative to their respective rated peers” and so there is “precious little fiscal space across the G7”.

Earlier on Tuesday, the Reserve Bank of Australia and Bank Negara Malaysia also cut interest rates.

Tuesday, 3 March 2020

US stocks jump on hopes for policy stimulus but rally “prone to failure”

Markets rebounded on Monday.

The S&P 500 surged 4.6 percent, the STOXX Europe 600 rose 0.1 percent and the Shanghai Composite jumped 3.1 percent.

Stocks “closed up strongly on the hope that fiscal and monetary stimulus is on the way,” said Kathy Lien, managing director of FX strategy at BK Asset Management, in a note.

Indeed, Chinese stocks rose despite extremely negative economic data.

The National Bureau of Statistics manufacturing PMI fell to a record low of 35.7 in February from 50 in January while its nonmanufacturing PMI fell to a record low of 29.6 from 54.1.

The Caixin/Markit manufacturing PMI fell to a record low of 40.3 in February from 51.1 in January.

However, Vasu Menon, executive director of investment strategy at OCBC Bank, questioned how much policy stimulus, particularly monetary policy, can help with a virus problem. “I’ll be cautious, I wouldn’t be too aggressive at this juncture,” he said.

In the US, the Institute for Supply Management's manufacturing PMI fell to 50.1 in February from 50.9 in January.

The surge in the US stock market was more or less predicted by John Hussman, president of Hussman Investment Trust.

Hussman noted in a commentary dated 1 March that the market conditions on Friday set the stage for a possible “clearing rally” in the coming days, “possibly including one or more daily advances on the order of 4-6%”.

However, Hussman also warned that the clearing rally may be of the “fast, furious, prone-to-failure” variety as “sustained risk-aversion related to pandemic flu may prove far more persistent”.

Monday, 2 March 2020

After sharp falls, stocks may still have more downside

Markets fell sharply last week as the COVID-19 coronavirus outbreak expanded globally.

The S&P 500 plunged 11.5 percent last week, putting it in correction territory.

While some investors may be tempted to buy stocks after the decline, BK Asset Management’s managing director of FX strategy Boris Schlossberg said that buying the dip could get very nasty for investors.

“If you have a couple of failed buy-the-dip situations going forward this year, it’s going to really create a very sour sentiment and you’re going to have much steeper declines than people believe,” he said.

Schlossberg added that the drop in earnings estimates could be “much worse than people think.”

Craig Johnson, senior technical research analyst at Piper Sandler, said that while he thinks the secular bull market is intact, “market internals have gotten weaker, and we continue to see some of our proprietary market timing gauges flip into sell positions, so this can be a little bit more downside that’s going to have to get played out”.

Similarly, Wharton School professor Jeremy Siegel said that the coronavirus outbreak is “a very severe one-year shock” but added that the subsequent bounce back “could be extremely rigorous”.

Even more optimistic is Thomas Lee, founder of Fundstrat Global Advisors. Lee said in a research report on Friday that “markets are bottoming this week”.

Both Siegel and Lee think that a Federal Reserve rate cut could help markets but Paul R La Monica at CNN thinks it will have little impact on the economy.

He wrote last week that “rate cuts, tax cuts and other stimulus won't stop a virus and the ultimate economic impact it will have”.

“There is all kinds of evidence on epidemics to suggest that we will get through this. But no amount of monetary or fiscal stimulus will have any effect whatsoever,” KC Mathews, chief investment officer of UMB Bank, was quoted as saying.