Weekly market update : America in the spotlight

04/03/2020 | 11:24am
April  3
Weekly market update
intro With Covid-19, we are running operations differently at MarketScreener, which means that the Weekly Market Update is once again published on a Friday... Financial markets halted their recovery this week, caught up by the spread of Coronavirus. As a result, operators have opted for further clearances, while recent statistics confirm the slowdown in global activity and companies drastically revise their outlook downwards, reviving aversion to risky assets.

Over the past week, all the indices have taken profits.

In Asia, the Nikkei lost 8.1%, the Hang Seng and Shanghai Composite lost 0.8% and 0.3% respectively.

In Europe, while the major indices had recovered more than 20% from their recent lows, the CAC40 recorded a weekly loss of 3.6%. The Dax lost 0.6% and the Footsie %. For the peripheral countries of the euro zone, Spain lost 3% and Italy %. Only Portugal gained 1.2%.

At the time of writing, in the United States, the Dow Jones fell 1% over the last 5 sessions, the S&P500 lost 0.6% while the Nasdaq100 gained 0.6%.

Oil prices soared during the week. Donald Trump's tweet was a bombshell as he announced an upcoming Russian-Saudi agreement on an upcoming 10 mbpd cut in oil supply, a cut that could go up to 15 mbpd.

However, OPEC officials are more measured, calling for an emergency meeting of OPEC+ including other G20 producing countries (United States, Canada, Brazil?) to discuss global cooperation to limit global supply. Brent is up 24% and is back above USD 30 (see graph).

Volatility remains high on the price of an ounce of gold, which finally ends the week around the equilibrium at USD 1611. Silver also stabilizes at USD 14.36.

The consolidation movement continues in the base metals segment. Copper even has the luxury of gaining some ground at USD 4821.

Brent barrel rises back above $30

Equities markets


Three stocks for the price of one this week, with the trio Roche, Novartis, Nestlé, which partly explains why the Zurich Stock Exchange's flagship index is almost twice as good as the Stoxx Europe 600 in 2020. The Swiss index has lost just over 12% since January 1, half as much as the European broad index. This is partly due to the outstanding performances of Roche (+2.7%) and Nestlé (-2.5%) since the beginning of the year. Novartis is less buoyant but limits its decline to 11%.

The three Swiss giants together account for 56% of the SMI and have all of the virtues appreciated by investors in troubled times: generously capitalized, well managed and present in both buoyant and defensive markets. The trio allows the SMI to afford the luxury of being neck and neck with the Nasdaq 100, the leading index of Western markets for several years.

RoNeNo against the Stoxx Europe 600

Bond market

The bond market changed little this week.

The French OAT finished at 0.06%, the BTP (Italian yield) at 1.5% and the Bund remained in negative territory at -0.48%. The Spanish benchmark is at 0.77%.

In the United States, the US 10-year yield fell slightly to 0.59%, as did the 5-year yield to 0.4%.

The Swiss benchmark stabilized at around -0.347%.
Forex market

Forex traders' appetite for the U.S. Dollar remained intact throughout the week, despite exploding U.S. unemployment figures. Triumphing as a safe-haven currency, the greenback gained ground against all of its counterparts, EUR, JPY and AUD.

The EUR/USD pair is now down to USD 1.08, approaching its March lows. The yen tilts against the dollar, as the USD/JPY pair rises to JPY 108.

On the contrary, the single currency is clearly losing momentum, suffering from a fragmented Europe in its fight against Covid-19. The euro is thus losing ground against the Swiss franc at CHF 1.05 but also against the yen (JPY 117) and the pound (GBP 0.88).
Economic data

The week was marked by a curious but nevertheless logical divergence of the PMI indicators, which measure the morale of purchasing managers and are therefore the best leading macroeconomic indicators available to investors.

When the indicator exceeds 50, it signals a phase of economic expansion. Below 50, it is the opposite.
The ForexFactory charts below illustrate the gap between China and the West. In China (left chart), the official Manufacturing PMI for March stood at 52 points after collapsing below 36 points in February (a record low). In the Euro-Zone (right chart), it plunged to 44.5 points in March after 49.2 points a month earlier. The lag can be explained by the recovery of activity in China with the gradual return to normality.

As for the other statistics, they were disappointing overall. In the United States, weekly jobless claims jumped to 6648K and the unemployment rate rose to 4.4%. 701K jobs were lost over the period (consensus -100K).

Chinese and European manufacturing PMI indices

America in the spotlight

After the Asian and European continents, the expansion of Covid-19 is now hitting the United States hard, forcing it to apply and reinforce the same containment measures in force elsewhere, which are detrimental to its economy. The country is now hosting the largest Covid-19 outbreak in the world, with the worst daily death toll since the beginning of the pandemic episode: more than 1000 deaths linked to the coronavirus in 24 hours.

While we must first fear a worsening of this tragic count in the coming days, it should be noted that macroeconomic indicators have already begun to falter, in historical proportions. Destruction of hundreds of thousands of jobs, exploding unemployment, a drop in the morale of purchasing managers, evaporation of investor confidence - recession is inevitable. The question now is how long it will last, so that we can project what form the economic recovery will take: fast in a V, slow in a J, or U if the economy does not pick up again until the fourth quarter.

This response will of course depend on the ability of the United States to contain the spread of the virus more or less rapidly on its territory. America will therefore be closely scrutinized by financiers.
Patrick Rejaunier
© MarketScreener.com 2020
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