Stocks Slide Again in Volatile Week
It’s been a better week than last but at the same time, there’s nothing normal or settling about the wild moves we’re continuing to see in the markets.
It’s been a week of some huge up and down days and is set to end, it seems, with the latter. I guess a volatile week that ends roughly where it started should be viewed positively given the week it followed but there’s plenty of other red flags that suggest investors are not quite as comfortable as equity markets would have us believe.
US 10-year yields fell to record lows earlier this week and the decline hasn’t eased up in the slightest. A surprise 50 basis point rate cut from the Fed did little to ease the nerves and yields have continued to plummet since which means the central bank is far from done. Another 50 is already strongly priced in for a couple of weeks time and the cuts just keep on coming.
The difficulty we have is that it’s still extremely difficult to understand just what the full impact of the coronavirus is going to be. There’s a lot of talk about disrupted supply chains, finally, but what that means for growth, employment and companies bottom lines is another thing.
Not to mention the ability of some to continue to operate unless the authorities put measures in place to support. Already in the UK, Flybe has fallen victim to the coronavirus, with the spread being the final nail in the coffin. The company was already on life support, and wrongly so some would argue, but others are likely to suffer a similar fate across multiple sectors.
Jobs report completely overshadowed
It’s easy to forget that it’s jobs report day. Often the highlight of the economic calendar, this month it’s merely a footnote in the broader market narrative. It’s unlikely that the coronavirus has had a significant impact on the US labour market in February so in a way, the data is arguably already outdated, despite its timeliness. I’m sure a bad report, particularly one that references the coronavirus, will send shivers across the markets given that this is only just getting going on that side of the pond.
OPEC hoping to reinforce floor below
Oil prices are continuing to languish near their lows, despite OPEC and its allies working towards an agreement on a 1.5 million barrel cut. Russia is putting up strong resistance to the deal which is threatening to seriously undermine it. This may just be a case of playing hardball in order to reduce the burden it must shoulder but a deal without Russia is unlikely to keep traders on board for very long. I’m optimistic that Russia will come through late in the day but given the broader market sentiment right now, I’m not sure just how much of a lift it will give prices, or whether it just further reinforces the floor below.
Gold growing in confidence
Gold rediscovered its mojo earlier this week and is now eyeing $1,700 once again, with momentum now very much with the bulls. With central banks easing around the world, the dollar getting hammered as the yield differential with the US shrinks and risk appetite not improving, it’s hard to put up much of a bearish case for gold. Perhaps if we see another week last week, we could see similar moves but beyond that, the environment favours the yellow metal.
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