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Mid-Week Wrap – Key Drivers and Impact on the Global Financial Markets

It’s been quite a week. With the Wednesday FOMC decision canceled, the market bulls are far from happy…
Bob Mason
Trump Effect

A mid-week recap on what we’ve seen and what to expect… There’s certainly never a dull moment in this market environment…

What is your opinion on the Fed’s decision to lower the interest rate?

While the scheduled Tuesday – Wednesday FOMC Committee Meeting for March was canceled, there’s certainly reason to consider the FED’s move.

We saw the FED slash interest rates to zero and deliver a bazooka of a QE program to support the economy.

The FED should have waited until Wednesday to deliver the move in a bid to avoid spooking the markets.

Interestingly, Trump had announced a likely rally in the equity markets over the weekend. The announcement suggested some collusion between the U.S administration and the FED.

When considering the fact that the FED is meant to move independently, this was of concern…

Of greater concern, however, was the decision to throw in the kitchen sink, leaving very little ammo.

Few, if anyone can predict how much of an impact the virus will have, so leaving little in the war chest, is alarming…

Interestingly, we’ve seen the likes of the RBA make cautious moves in a bid to avoid spooking consumers. This time around, the FED certainly lost credibility and it may take some time to regain confidence.

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Could you describe the effects of the coronavirus outbreak on the global economy?

This week we saw economic data begin to reflect the effects of the coronavirus on the global economy.

Out of China, industrial production and fixed asset investments tanked in February.

For me, more alarming, was just how far off economists were with their forecasts. This suggests that the markets have mispriced the effects of the virus and what lies ahead.

As we begin to digest February numbers out of Asia, we will get a better sense of just how bad things are. With the West going into shutdown mode, we will need to see March – April numbers to really be in a position to assess the damage. If NY Empire State Manufacturing numbers out of the U.S are anything to go by, it doesn’t look good. Then throw in February retail sales figures from the U.S, which were also in decline, then we can only foresee more doom and gloom to come…

What about economic data?

As mentioned, economic data out of China got the week going, with the slide in industrial production and jump in unemployment of material concern.

With the spread of the coronavirus continuing, this is no longer a 1st quarter trauma…

We can expect market sensitivity to the stats to return with February and March numbers beginning to trickle through.

While we are expecting quite dire numbers out of Asia, I’m particularly interested in the weekly jobless claims figures out of the U.S. Expect any move towards 300k levels to really spook the markets.

The last time initial jobless claims breached 300k was back in March 2015…

Also on Thursday, employment numbers out of Australia will be of interest. These are February numbers that will give an idea of what impact China’s shut down had on the Australian economy.

How are crude oil prices?

What a weak for crude oil prices. It’s actually hard to see any rebound near-term. Even if OPEC and Russia agree to deliver price support by cutting production, Trump will undoubtedly push shale producers to ramp up production.

Trump has always wanted cheap oil and this would be a perfect opportunity to provide consumers and the private sector with deflationary support.

For the Saudis, while they can stomach sub-$10 per barrel, the rest of OPEC and Russia cannot and nor can U.S producers. Trump will undoubtedly look to provide shale producers with financial support, but whether that will be enough to stomach a prolonged price war remains to be seen.

For now, expect the global shut down to materially impact price stability. Unless OPEC shuts the taps, there’s little upside near-term.

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