The Invisible Ceiling for The Markets

The positive dynamics of the last days or the figures of the monthly increase in exchange prices should not be misleading. Many assets are still bumping into the glass ceiling – more and more investors prefer to close purchases and look around for new signals.

Futures on S&P 500 reached the level of 2981 – the highest since March 6, but this morning it rolled back to 2913, losing 2.2% from the intraday peak. Japanese Nikkei225 is also facing an increase in sales. Even more noticeable are the difficulties of the EUROStoxx50 index, which since the beginning of April has hardly left the 1.25% range.

At first glance, Oil seems even better, having added 80% for the month to $36 per barrel of Brent on the spot market. But here too, sales increased as we approached April peak.

On Monday afternoon, markets showed more than 3% rally, with Oil growing three times stronger on reports of successful testing of the Moderna vaccine. However, this test on eight healthy people will be followed by a new phase with 600 volunteers. And if all goes well, we will get a vaccine by the end of 2020. It’s too long away and too uncertain to launch sustainable purchases in the markets right now.

But even if we move away from the medical topic, company reports show a very mixed picture. Walmart has managed to find the right balance between online retailing and partial shop operations. Many others fare much worse. J.C. Penney started a bankruptcy procedure, while many other retailers are experiencing a double-digit revenue drop compared to last year. Quarantine measures will accelerate the retail apocalypse that has been reported since 2018 in the U.S.

Trendy clothing stores in Europe have already opened in most countries, but without tourists, they are losing their customer base. Thus, the economic recovery can only be seen in comparison with previous weeks – it’s growth from a low base. Attempts to increase asset prices outside the crisis areas are probably doomed to stumble upon increased sales.

Investors should keep monitoring how income and dividends in companies change as quarantine restrictions are lifted. In our view, so far, all negative is pegged to quarantine, but retail sales in China and the behavior of commodity prices suggest that the bottom point for the markets is yet to come.

by Alex Kuptsikevich, the FxPro senior market analyst.