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Next step bear market (unless oil can bounce). Euro rally continues

This week has been quite the doozy. Recapping oil is down 12% and the Dow Jones is down 11% and we haven’t had Friday yet. Futures are pointing to another 900-point slide on Friday in the Dow on Friday’s open after the biggest one-day points fall ever on Thursday.

Shares on Friday are looking nose-bleed red. The FTSE 100 is set to crash 250 points at the open. Germany’s DAX looks set for a 500-point meltdown.

Wall Street nosed-dived into the close of business with the S&P 500 down 4% and deeper into correction territory. There will be some bumps in the road but... It seems a reasonable assumption that the coronavirus will not be contained so we are on course for a bear market. There are probably going to be some more wild swings today as markets try to put in a bottom after the rapid fall this week. But its hard to see what could provide enough certainty stop fear winning out before the weekend. One thing to keep in mind is that the China PMIs released on Saturday are bound to be dreadful.

Probably our best hope for some relief from the selling in the near-term is that oil prices bounce, lifting energy stocks. That certainly hasn’t happened so far. It has been richly priced tech stocks and oil sensitive energy companies dragging the market lower this week. The FT is reporting that Saudi Arabia is seeking a an additional 1M per day cut to oil output from OPEC+. Having waited this long to react, OPEC and its allies will need to cut very deep. They need to counteract the undefined demand destruction caused by the coronavirus

There has been no sign of the uplift in yields we thought might occur. Central banks have so far refused to give any concrete signs they will act against the coronavirus, but markets have understood that to mean a recession is more likely and pushed yields lower. US 10-year yields are down near 1.23% with fed funds futures markets now pricing in a 60% chance the Fed cuts rates in March. If the probability of a March rate cut increases to 80%, that’s a time the Fed will have to openly talk down the possibility. That should be a very stocks negative, dollar and yields positive event were it to occur

Dollar-yen (USD/JPY), the Aussie dollar and the Kiwi are down heavily in forex markets. The first coronavirus case in New Zealand sent the kiwi down 1% on the day. The pound is holding up after outgoing BOE Governor Mark Carney said the coronavirus could mean a growth downgrade for UK.

Amazingly amid the turmoil it has been a great week for the euro. Germany turning back the pages of history to open the government spending spigots is lifting hopes that European growth is set to improve. The United States is already tapped out after the Trump tax cuts and spending spree so it is possible Germany could spend Europe into a better economic performance than the United States in a coronavirus-induced downturn. Some caution is warranted though since there is not yet consensus in Germany about the fiscal response. Weimar Republic levels of German debt is not a done deal just yet.

1-4-2020

End of one of worst quarters ever
The Dow Jones just posted the worst first quarter ever. That’s how bad things are at the moment, but are they ‘peak bad’? Because that would imply a bottom in the stock market. Data from China today continue to suggest light at the end of the tunnel there, bu… Read more

31-3-2020

Markets stabilise on hopes for vaccine, SNB intervening on franc
Beware the Ides of March. There is a lot of relief out there that March as well as the first quarter is almost over. A fresh month can offer some fresh perspective, and perhaps a more constructive one.   President Donald Trump extending social distancing gui… Read more

18-3-2020

The rebound on stimulus hopes loses momentum. Brent < $30
A bigger picture is starting to emerge of how governments are responding to the pandemic and that in itself offers some needed certainty. Authorities are trying to balance economically damaging travel restrictions and social distancing rules with cheap loans f… Read more

17-3-2020

Stocks Rebound after rout, Airline bailouts? Gold holds $1450
Governments are stepping up their response to the coronavirus outbreak which is allowing markets a chance to recuperate on Tuesday.   Following the worst day since Black Monday on Wall Street, US futures went ‘limit up’ – meaning prices could not rise of ove… Read more

16-3-2020

Central Bank Bazooka Misses Target, Stocks in Freefall
Central banks led by the US shot off a bazooka of lower interest rates and quantitative easing but it has missed target. Markets are back into freefall.     Friday’s gains have evaporated and shares are headed deeper into bear market territory. Bank shares a… Read more

12-3-2020

Dow falls into bear market, FTSE to tank, little hope for ECB
Dow drops into bear market, S&P to follow after Trump speech Trump managed to spook an already spooked market. European share markets are set for sharp opening losses. The FTSE is on course to tank 300 points to take it down 30% off its May 2018 peak. The… Read more

10-3-2020

US tax cuts lightening the mood in market hangover
There will be investors waking up today and wondering if it was all a bad dream. But it was all too real. Oil did fall by the most since the Gulf War and global stock markets did have their worst day since the 08 crisis. Today will be a like a hangover. All yo… Read more

5-3-2020

OPEC meeting, Flybe administration & fortune favours a brave BOE
Shares in Europe look set for higher open following the wake of a ‘Biden bounce’ on Wall Street. The Dow saw another +1000-points day led by healthcare companies on the hope the US can avoid a national healthcare service under a President Sanders. Actually, we… Read more