Update 20-03-2020: FTSE and Dow Jones see gains start to dissipate, Eurozone and pound hold strong

Though the overall picture remained positive this Friday, the FTSE saw its rebound continued to ebb away as the session went on.

 

At one point up close to 5%, the UK index’s gains dwindled to just 0.2%. The FTSE was in part dragged down by its banking stocks, with RBS leading the way with an 8% decline. The pound’s persistent rebound also harmed the index; sterling rose 2.3% against the dollar and 1.7% against the euro, lifting away from its recent 1980s-matching lows.

 

The fact Rishi Sunak’s much-speculated upon stimulus package failed to materialise didn’t do the UK index any favours.

 

The FTSE wasn’t alone in this comeback. Climbing around 2% after the bell, the Dow Jones saw its growth reduced to 0.4% following the latest intervention from the Fed. The central bank revealed it was expanding support to the municipal bond markets, in order to ease the pressure on local government authorities.

 

In contrast to their UK and US peers, the Eurozone indices put in a pretty strong showing. For while they did fall from their intraday peaks, the DAX and CAC still rose 4% and 5% respectively.

Update 19-03-2020: ECB stimulus and record low Bank of England rate cut helps bring uneasy calm to markets

In one of the comparatively more stable sessions we’ve seen of late, a double-hit of ECB/Bank of England stimulus produced something calm-adjacent on Thursday.

 

Following on from Christine Lagarde’s €750 billion economic package for the Eurozone, Andrew Bailey’s Bank of England slashed interest rates for the 2nd time in as many weeks, all the way to a record low of 0.1%. The BoE also announced it would be buying an extra £200 billion in bonds in order to further try and ease the situation in the UK.

 

The main beneficiary of this was the pound – which, to be clear, was in desperate need of this temporary escape rope. Lifting away from the sub-$1.15 lows struck earlier in the session – levels last seen in the 1980s – a 1.6% increase pushed cable back across $1.176. Against the euro, meanwhile, sterling was even more eager to recover, jumping 3% to lug itself above €1.093, clawing back most of Wednesday’s losses in the process.

 

The pound’s surge limited the FTSE’s own rebound, with the UK index only managing a 0.8% increase. In comparison the DAX was up 1.5% and the CAC 1.8%, the French bourse pulling back from its post-open excitement.

 

As for the Dow Jones, it took baby steps towards recovering Wednesday’s latest quadruple-digit decline, adding just over 300 points to cross 20200.

Update 17-03-2020: Fed finally finds an intervention that works with market-boosting CPFF

Just as investors were starting to seriously flag once again, the Fed actually managed to pull-off a market-boosting intervention after a string of false dawns.

 

The central bank announced on Tuesday that it would be launching a Commercial Paper Funding Facility, i.e. a way for it to buy up short-term debt issued by struggling companies seeking to raise cash.

 

It seems that, after being sceptical of the Fed’s rate cuts and trillion dollar stimulus injections, the creation of this new special credit facility was the kind of thing investors were hoping for.

 

The reaction was remarkably uniform from the Western indices. The Dow Jones added 2.6% to cross 20700, an increase that rescuing the index from the sub-20000 levels briefly struck after the bell. The DAX and CAC, both of which had sank into the red at lunchtime, climbed 2.7% apiece following the Fed’s announcement, with the FTSE leading the way with a 3%, 5250-teasing increase.

 

Of course, that is nothing compared to the 3000 point fall suffered by the Dow on Monday. And there is still a way to go until the end of the US session, leaving plenty of time for the index to lose confidence. However, it does suggest that Jerome Powell and his FOMC friends may still have some market-easing weapons in their arsenal. Wednesday night’s scheduled meeting, complete with fresh economic projections, is becoming more and more interesting by the minute.

 

Another major beneficiary of the Fed’s move was the dollar. The greenback went on a tear once the CPFF was revealed, surging 1.6% against the yen and pound, and 1.9% against the euro. Cable is now stuck under $1.2065 for the first time in close to 6 months.

Update 16-03-2020: Europe more than halves losses despite ugly drop from Dow Jones

Though the Dow Jones opened sharply lower, in a rare sight the European indices didn’t double down on their own losses, instead cutting the morning session’s slump in half.

 

The Dow quickly shed 6% once the bell rang on Wall Street, taking the same comfort from the Fed rate cut/quantitative easing programme as its peers across the pond – i.e. none at all. This 1400 point plunge left the US index at 21700, above the sub-202350 lows struck briefly after the open.

 

Finding a smidge more confidence that was seen at that start of the day, the FTSE managed to claw its way back to 5150 – now small feat given that at one point it was trading under 4850 for the first time in 8 and a half years.

 

This sort of-recovery was echoed in the Eurozone. The DAX was down 2.4%, a colossal improvement on its 7.8% lunchtime dive, while the CAC underwent a similar turnaround, reducing its losses from 9.3% to 3.4%.

 

Now Europe just has to cling onto those levels until closing time. As for the Dow Jones, it tends to save its big moves for a bit later on – even at its current 6%-plus decline, precedent would suggest that a rally isn’t out of the question. Where the news to prompt such a swing would come from, however, is another matter entirely.

Update 16-03-2020: European losses accelerate as oil collapses, worrying US session still to come

Monday began to turn into another one of those sessions, investors’ fears of a global recession unshakeable despite – or maybe even because of – wave upon wave of central bank action in the last few weeks.

 

Under intense pressure due to a complete collapse in demand – just look at China’s 13.5% industrial production contraction – Brent Crude plunged 12.4% to $30.35 per barrel. That’s less than half of the $70 per barrel seen at the start of 2020.

 

This, of course, created a major headache for the commodity-heavy FTSE, especially since copper itself was down 5.3%. The UK index tumbled 6.2% as the day went on, taking it under 5000 for the first time in 8 and a half years.

 

In a sign of just how bad things are at the moment, that percentage decline meant the FTSE was actually one of Monday’s better performers. The DAX shed 7.8% as it sank to 8450, while the CAC really let rip with a 9.3% slump following reports that France is considering a Spain and Italy-like nationwide lockdown.

 

The worrying thing is, there is still the US open to come. The sound of the Wall Street bell has tended to act as an accelerator for European losses, which, given their current levels, could cause an orgy of selling.

 

The Dow Jones is expected to lose around 5.7% when trading gets underway, leaving it the wrong side of 21800 but above the 20400 lows struck at points last Friday.

 

Source: SpreadEx