Update 26-03-2020: Record breaking number of US jobless claims fails to prevent market rebound

An astonishing – as in, astonishingly bad – jobless claims figure failed to stop a continuation of the week’s rebound this Thursday.

 

For the week ending 21st March, 3.283 million people filed for unemployment in the USA. The week prior it was only 281k. In fact, the all-time record is just 695k, set back in October 1982. Even at the height of the financial crisis the figure peaked at 665k.

 

At the start of the year that jobless claims reading was unimaginable. Today it actually fell short of some analysts’ top end estimate of 4 million. Regardless, it is a truly alarming figure whichever way you slice it, yet one that failed to send the markets into another downward spiral.

 

If anything, after the reading was released equities actually started to pick up, erasing the morning’s losses to continue the rebound that properly began on Tuesday.

 

The Dow Jones led the way, adding almost 1000 points to strike 22200. This rise – once extraordinary, now commonplace – may have been prompted by a TV interview with Jerome Powell, once that saw the Federal Reserve chief claim that the central bank would ‘not run out of ammo’ as it tries to protect the US economy. Combine that with the long-awaited passing of the $2.2 trillion stimulus package, and you perhaps have the reason for the Dow’s blockbuster open.

 

With the US markets in high spirits, Europe was able to edge into the green. The FTSE, which had fallen under 5550, recrossed 5700 as it added 0.7%. The DAX, meanwhile, snuck its nose back above 9900 following a 0.3% increase, with the CAC hefting itself across 4450 thanks to 0.6% push.

Update 24-03-2020: G7 pledge, and better than forecast manufacturing PMIs, cause explosive rebound

Deciding to take a positive view of the day’s dreadful PMIs, while also benefiting from a statement by the G7, the markets rebounded hard on Tuesday.

 

The G7’s financial ministers and central bank heads pledged to ‘do whatever is necessary’ to protect, and eventual restart, the international economy, promising cooperation on ‘substantial and complementary packages’ to help out companies struggling in the face of the crisis.

 

Suggesting that investors are far more receptive to broad-based governmental strategy than pure central bank monetary policy, the Western markets only intensified their gains as the session went on.

 

Equities have been in the green since the European open, holding strong in the face of a series of far worse than forecast flash services PMIs, the blow cushioned by a run of consistently higher than expected manufacturing readings.

 

The Dow Jones – which could still be derailed by intransigence regarding the USA’s own stimulus plan – galloped ahead with a near 1600 point surge, rocketing the index back to 20200.

 

The gains were just as robust in Europe. The FTSE saw its own growth rise from 4% to 6.5%, pushing it across 5300 – remember yesterday it was trading under 5000 – while the DAX added a whopping 9% to lug itself past 9500.

 

Whether this rebound can be carried into Wednesday is unclear, and is likely dependent on if the Senate can finally agree upon a bipartisan package, one that could run as high as $2.5 trillion according to Nancy Pelosi’s proposal.

Update 23-03-2020: Fed fails to reassure markets for umpteenth time despite unprecedented measures

For the umpteenth time since the coronavirus crisis took hold, the Federal Reserve offered the markets an unprecedented package, only to have the door slammed in its face.

 

This time out Jerome Powell and co. announced essentially an unlimited version of its bond-buying quantitative easing programme by stating it would purchase securities ‘in the amounts needed’. Previously it was aiming for ‘at least $500 billion in US Treasuries and $200 billion in agency-backed mortgage-backed securities’.

 

On top of this it revealed a Primary Market Corporate Credit Facility, a Secondary Market Corporate Credit Facility, restarted the Term Asset-Backed Securities Loan Facility and said that a ‘Main Street Business Lending Programme’ would soon be on its way.

 

Combine this with all the previous measures taken by the Fed – the rate cuts, cash injections and the like – and you have a staggering amount of monetary policy announced in less than a month. Yet look at the markets and you’d think the Fed hadn’t done a single thing.

 

Initially Monday’s kitchen sink prompted a turnaround, lifting Europe into the green while sending the Dow futures from a 5% slump to a 2% rise. And then, come the US open, all of that goodwill had disappeared in a puff of smoke, repeating a pattern that has happened every single time the Fed has tried to reassure investors.

 

The Dow Jones – still reeling from last Friday’s late losses and smarting at the lack of bipartisan stimulus plan from the Senate – sank 650 points to fall below 18550. The FTSE tumbled back towards its intraday lows as it shed 4.5%, while the DAX and CAC lost 3% and 4% respectively.

 

The real winners were the euro and gold. With the dollar now unappealing, and the pound dead in the water, the single currency climbed 1.3% against the former and 1.5% against the latter. Gold, meanwhile, shot up nearly 4% to $1548 per ounce.

 

Worryingly Tuesday will see the markets confronted with some hard data, the session’s flash manufacturing and services PMIs for March set to reveal the early cost of the crisis.

Source: SpreadEx