Weekly Market Outlook

While reading this article, you should bear in mind that the top story to look out for this week is the unfolding of the dynamic situation surrounding the coronavirus. What you need to be looking at is not just the pace at which the virus is spreading, but also the institutional response, both on a country and on a global level. The markets will be scrutinizing the measures taken by leading countries to judge how long the pandemia could be menacing the world and what the potential impact on the global economy could be.

Traditional Safe Havens Also Fall Victim To the Panic

As you clearly saw in the last few weeks, the panic inflicted by the rapid spreading of the disease caused a meltdown on capital markets. Quite surprisingly though, the traditional safe haven assets in market turmoil, precious metals, faced some serious selling pressure last week too. This clearly demonstrates the prevailing panic which results in massive liquidation of positions on various asset classes. Our advice is to watch out, as there is no “sure bet” in the current state, which can keep your capital safe.

FED Slashes Rates to Zero and Takes Coordinated Action With Major Central Banks

The most keenly awaited data this week was by far the FED interest rate decision. Although it was scheduled for Wednesday, the US central bank once again surprised markets by slashing rates by 100 basis-points to near zero on Sunday. The institution went further by announcing a restart of its massive bond buying program.

In addition, the Federal Reserve announced coordinated action with the ECB, Bank of England, Bank of Canada, Bank of Japan and the Swiss National Bank. The six major central banks moved aggressively with emergency rate cuts and a joint agreement to lower pricing on USD Liquidity Swap Arrangements by 25 Bps. These dramatic efforts once again reinstate the severity of the situation the US and the entire world finds itself in. The panic moves by the FED and other counterparts describe how scared and helpless institutions are at the moment. The market reaction on Sunday evening was no different: US stock futures plunged to their daily limits, and the corresponding venues were once again forced to stop the trading.

The February China retail sales numbers came out really ugly last night: -20.5% against 8.0% for the previous period and an estimate of 0.8%. Following the latest substantial drops in the purchasing manager indices (PMIs) and the significant deterioration in exports, the retail sales provide a good insight into the potential global impact the coronavirus would have. Remember that quarantines, self-isolations and shutdowns are merely starting to hurt the US and Europe.

The German ZEW economic sentiment index is another keenly awaited piece of economic data due to be released on Tuesday. Investor sentiment notably improved at the end of last year in Germany after several months in the red. This, of course, was a function of the recently improved PMI figures, which led many to believe that a broader recovery in German economy was ahead. This quickly resulted in the DAX hitting a record high in February. The brutal sell-off that followed would most likely be reflected in the ZEW numbers for last month. For this reason, we expect the index to slip back into negative territory, which would reinstate the risk aversion not just on German but on global markets.