Weekly market update : A time of paradoxes

Monday March 30

Weekly market update

After the turmoil of recent weeks since coronavirus started spreading, financial markets have clearly regained some ground last week, boosted by the recent support measures and in particular the USD 2,000 billion plan adopted by U.S. lawmakers. These recent announcements have helped to revive traders' risk appetite somewhat, even though volatility is likely to continue in anticipation of the flattening of the contamination curve.

Indexes Over the past week, the major indices have all rallied, as traders made a few cheap purchases, welcoming central bankers' announcements and government support plans. In Asia, the Nikkei gained 2.6%, also on the back of the Yen's decline, while the Hang Seng gained 17.4%. In Europe, the CAC40 gained 7.5%, the DAX gained 7.9% and the Footsie gained 6.1%. For the peripheral countries of the euro zone, Portugal, Spain and Italy rose by 7.4%, 5.1% and 6.9% respectively. In the United States, the Dow Jones posted a weekly performance of 13.5%, the S&P500 gained 10.4% and the Nasdaq100 9.1%, despite Friday's profit taking. CAC40's technical rebound

Commodities Last week, U.S. producers submitted the idea of contributing to market regulation. Russia invited as many producer countries as possible to join OPEC+ to find a new agreement. While waiting to learn more, operators are focusing on real and tangible data, such as the sharp drop in oil demand expected this year. Brent is trading at annual lows close to USD 25 per barrel while WTI is flirting with USD 21.5. Precious metals have recovered last week, supported by the greenback's decline. Gold rose by 8% to USD 1620. Silver advanced by 13% to USD 14.35 an ounce. The time has come for stabilization in the industrial metals segment. Bearish pressures are becoming less violent, like copper, which is hovering around USD 4775 per metric ton.

Equities markets Boeing The Boeing share had a few difficult sessions with gigantic variations. The American industrialist now weighs much less than he did a year ago. The B737MAX crisis and the arrival of coronavirus have taken a toll. The group is also weakened by the freeze on passenger air transport. This did not prevent the stock from taking off during the first four sessions of last week, boosted by the recovery plans and the prospect of the B737 MAX returning to operation during the summer. Investors, who think they are buying back cheaply, are not overly moved by the dividend waiver. Boeing's share price rises sharply

Bond market In these exceptional economic times, central banks are making unprecedented decisions. Last week, the European Central Bank decided to end the rule that it would not buy back more than 33% of a tranche of public debt issued by a euro area member state under its PEPP (Pandemic Emergency Purchase Program). In other words, the central bank de facto controls the spreads between public debts, according to KBC. The announcement has led to an easing of interest rates on the old continent, particularly in Italy and Spain. Ten-year government debt remains in negative territory in Germany, Switzerland, the Netherlands and France. Italy stands at 1.29% and Spain at 0.49%, against 1.58% and 0.85% respectively before the announcements. In the United States, Treasuries posted a 10-year yield of around 0.8% for most of the week, before falling back to 0.73% on Friday. The 5-year is at 0.44%.

Forex market Forex traders have decided to leave the U.S. Dollar last week, gradually trading down as they regain a taste for risk. The "gigas" of stimulus packages are helping to alleviate traders' fears, weakening the greenback. The EUR/USD pair thus returned to USD 1.10, as the euro also increased its gains against the dollar after a record increase in the number of unemployment claims in the United States. The fragility of the dollar can be seen in the evolution of the USD/JPY pair, with the yen gaining ground against the dollar at JPY 108, despite the surge in equity markets. As for the euro, the single currency is benefiting from the Eurogroup's support measures and is gaining against the Swiss franc at CHF 1.07 and the yen at JPY 120.5.

Economic data The week was marked by disappointing statistics on both sides of the Atlantic. In Europe, activity indicators were disappointing overall, as was the PMI services index, which came out at 28.4 in the euro zone (consensus 40). On the other hand, the PMI manufacturing index exceeded expectations (44.8 against 40.1 expected), but remained well below the 50 mark. The IFO business climate index in Germany came out at 2.7 against an expected 7.4. In the United States, the highlight of the week was the surge in weekly jobless claims to 3283K (against 1648K expected and 282K last week). The PMI indices were mixed, (Manufacturing PMI index at 49.2 and services at only 39.1), while US growth was confirmed at 2.1% in the fourth quarter, as the market expected. Weekly Unemployment Claims soar with Covid-19

A time of paradoxes Excess breeds excess. This is exactly what we are witnessing, as the violent fall of the markets has given way to a powerful rebound. The risk of a reversal is therefore high, a risk that crystallizes again and again the lack of visibility for investors who navigate on sight. This period should last and extend over the next few weeks, with many paradoxes. The paradox of Europe passing its epidemic peak while the curve of the number of contaminated people in the United States is almost vertical. The paradox of a market that almost welcomes the carnage of economic statistics, hoping for even more recovery to support the global economy. The paradox of a controlled sanitary situation in China, synonymous with the reopening of factories, but which cannot operate at full capacity for lack of demand. This accumulation of paradoxes will test the ability of operators to make rational choices, calling into question the theoretical efficiency of financial markets.