Country
UK
The UK is not taking the coronavirus lightly, despite initial criticism against the government to the contrary. The number of cases now stands at 3,983 with 177 deaths, a significant acceleration on a day earlier. Much darker days lie ahead but both the government and Bank of England have announced huge fiscal and monetary easing packages and made clear that they will continue to add to them as the situation develops.
The pound sold off heavily this week, despite these efforts, including an incredibly volatile day on Friday in which the currency gave up most of its earlier gains. It’s not likely to get easier for the country or anything associated with it. The BoE meets next week but the way they’re easing at unscheduled meetings, I’m not sure that’s even particularly important any more.
Eurozone
The ECB disappointed the markets by not cutting interest rates at the meeting last week but responded with a massive surprise QE program on Wednesday that made up for it. The temporary bond purchases, until the end of the year, named Pandemic Emergency Purchase Program, took pressure off the rising yields across Europe. Central banks aren’t taking this lightly so we can probably expect more unscheduled announcements for weeks to come.
US
The data is about to get ugly for the US economy. It is a worrying time for many Americans and the next jobless claims release will be the opening act to a string of terrible economic data releases. Filings for unemployment benefits are going to skyrocket well above their record high that occurred during Hurricane Sandy in 2012. With half of US workers receiving hourly pay, filings for restaurant, retail, hotel, and travel businesses could see well over a million claims filed for the week ending March 21st. Expectations are all over the place with one analyst eyeing 3-million jobless claims.
The Fed has been very active in delivering stimulus and so has the government. Washington has already passed two phases of virus relief with the big $1.3 trillion economic stimulus potentially set to get voted on early in the week.
The lockdown efforts will likely intensify in the US and all eyes will be on how quickly healthcare capacity is reached. Any slowing in the spread of the coronavirus could prove to be supportive for risk appetite, but all early signs suggest that will probably not be the case.
US Politics
The Democrats have quickly settled on former-VP Joe Biden as the nominee, technically not official, but pretty much guaranteed. Biden will lose a lot of momentum as social distancing will prevent him from holding rallies. US politics should take a backseat for a couple months until Washington is able to do everything they can for providing support to those impacted by the coronavirus.
China
Industrial Profits due next Friday. Investors pricing a recovery China for now as new coronavirus cases are plummeting to zero. Faces an external demand shock from coronavirus.
A resurgence of coronavirus sees double dip. Authorities tightly managing stock market and currency volatility. Stocks could suddenly collapse if authorities step aside.
Hong Kong
Economy mired in a deep recession due to coronavirus slowdown. On the plus side, protests have subsided to almost nil. No significant data or events next week. Cathay Pacific slashes capacity by 96%.
Covid-19 could weigh on the economy leaving national champions like Cathay Pacific bleeding. Sentiment on equity market very fragile.
India
A huge winner from oil price collapse will help the RBI stagflation fight. No data of significance. Credit markets under strain post the RBI takeover of Yes Bank
A sudden spurt of coronavirus cases could overwhelm health system. INR and Nifty as risk of declines as investors flee. Credit markets could become very tight as Yes Bank failure delivers another blow to the banking system. Cap for Yes Bank withdrawals ends next week. A bank run has the potential for domino in the financial sector.
Australia
Panic buying of consumer staples as coronavirus cases increase. The slowdown in the domestic economy as borders are shut. RBA cut rates and announced a massive QE programme. Will do what it takes. AUD crushed, hitting multi-decade lows. Massive stock market volatility. Members told to decrease the number of trades by 25%.
There is a real risk of heavy intervention by the RBA. The stock market may introduce trading curbs and/or shorten trading hours.
New Zealand
No significant data. Containment measures appear to be working well with low number of cases. Like AUD, NZD has been heavily sold, hits GFC low. Remains vulnerable to further resource price drops. RBNZ cut rates to 0.25% and preparing other measures if needed. No sign of housing market stress or job losses.
Spike in coronavirus cases will put pressure on NZ stocks. More likely is a massive short squeeze as NZD is hugely oversold.
Japan
Doubts persist over true numbers of coronavirus cases. BoJ no cut but increased QE. Fiscal stimulus package from the finance ministry is still imminent. No data of note. High risk of Olympics cancellation, blow to the economy. Nikkei refusing to rally when rest of Asia and the US do is a bad sign.
Doubts persist over Japans true coronavirus numbers. Risk of Olympic cancellation. Delayed response from the government on the fiscal front. Any of these factors can send Japan equities much lower, quickly.
Market
USD
The dollar has come back into favour and rapidly, despite a slew of measures from the Federal Reserve to support the economy and ensure the plumbing of the financial markets continues to function. The dollar has been soaring to trade at its highest level since the start of 2017. Expect to see a lot more focus on emerging markets as a result, particularly those with large dollar-denominated debt and current account deficits.
Oil
It’s been a wild ride for oil and today was no different. Early gains were short-lived and heavy losses followed once again. It’s the perfect storm for oil which is facing a global recession and an oil price war. The latter can be avoided but no side is showing any indication that it’s going to blink first.
Gold
Gold prices appear to be stabilizing but its role in the markets right now is anyone’s guess. Today’s it’s rebounded alongside the improvement in risk appetite, while falling for much of the week as central banks around the world threw the kitchen sink at the coronavirus. Their efforts are not in vain but we’re not seeing the surge in demand for gold that we’ve seen in the past when the market is flooded with liquidity. I feel there may be a lag effect, with investors still liquidating gold positions to fill holes elsewhere but only time will tell.
Bitcoin
No one will be more relieved than crypto fans about the rebound over the last 48 hours. After falling 63% from mid-February to mid-March, it’s now rallied more than 70% in less than a week to trade close to $7,000. It will be difficult to maintain these gains though as I don’t think the worst in the markets is behind us and cryptos have clearly been among the victims. Worse days may still lie ahead.
