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Where is the Bottom of the Abyss? Too Many Views Simply Muddy the Waters

Market volatility doesn’t appear to be going anywhere and that’s not going to change until the spread of the coronavirus slows and slows materially.
Bob Mason
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A bullish week ended in tears last Friday. The markets simply convulsed at the jump in new coronavirus cases across the West.

Fears of a continued surge in new cases had been attributed to the sell-off.

A lack of material stats on the day and Bad News Betty was likely to be more influential. There had seemed to be an inevitability going into the weekend of another surge in cases.

Not wanting to sound like an eternal optimist nor a scaremonger, there remains one simple reality for the markets.

We need to see the daily increase in the number of daily coronavirus cases top out.

One good day is certainly not a valid reason to simply jump back into riskier assets and assume that the worst has passed.

Europe and the U.S

When we see the sheer spread of  COVID-19 across Italy and the rest of the EU, it’s not surprising that the economy has gone into meltdown mode. It was barely chugging along before the virus arrived on Italy’s doorstep.

A complete breakdown in the global supply chain, the shutdown and even more stringent containment measures at the end of the 1st quarter suggest more pain to come.

When considering the fact that China has joined the rest of its neighbors in shutting down its borders, is there really any justification to be calling a bottom to the global equity market rout?

Probably not, but as we have seen over the last 18-months and perhaps longer, at times the markets have moved without logic or impetus…

Last week’s rally, driven by the $2tn Stimulus Bill was perhaps another example of just that. After all, the Bill was voted in based on numbers at the time the numbers had been decided upon. Well, since then, the number of cases in the U.S has more than doubled.

Is a US$2tn stimulus package going to be enough to give the needy the support they need? The answer to that is no. That is before even considering how long it would likely take for anyone to see a dime. It would take even longer if Trump gets his wish and signs every cheque.

Caution Warranted

So, while the global equity markets bounce around, picking the bottom remains futile.

What will be of greater importance, in the weeks ahead, will be to assess conditions geographically. Investors will need to consider which economies will begin rebuilding ahead of others…

When considering the path of the virus, the logical assumption would be that Asia would rebound sooner. This assumption has caught the markets off guard before, however, though it may have been many moons ago.

March economic numbers are now muted as central banks and governments, made their moves. The markets no need to wait for April and May figures to assess whether policy support has been effective. It is a tough call, however, for an impatient market looking to get back on the bull bandwagon.

That leaves the success of governments to contain the virus as the key driver. It is a big decision, however, to rely on numbers that are fed to the news wires. But in reality, we have also debated China’s GDP numbers over the last few years and longer, so…

Is it time to jump back in? Only if you are made of Teflon… The volatility across the asset classes will need to subside before there is a hint of a bottom. 20% daily swings in the likes of Airbus does not give comfort to even the bravest of investors.

So…

As we see the 1st quarter rapidly coming to a close, the rollercoaster ride is set to continue into the 2nd. Even Trump has had to withdraw hopes of an Easter economic revival…

At the time of writing, the EUR was down by 0.79% to $1.10438. Risk sentiment aside, the devastation across the region is going to take some time to address, the money printers in action or not. Then factor in other global economies heavily reliant upon consumption and the global supply chain…

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