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Collinson FX: Collinson FX: April 15, 2020 - Several nations emerge from lockdowns

by Collinson FX 15 Apr 2020 06:49 PDT 16 April 2020
- Mahurangi Regatta - January 2020 - Mahurangi Harbour © Richard Gladwell / Sail-World.com

Collinson FX: April 15, 2020 - Strong rebound continues

The strong market rebound continued on equity markets overnight. The coronavirus appears to be under control and contained. Various treasuries and banking institutions are releasing reports measuring the impact of the virus on global economies. These reports are giving markets more certainty and allowing risk appetite to grow. The IMF have reported on global growth contractions of around 7%, while NZ Treasury estimated the impact of the virus will be greater, due to the highly trade exposed nature of the economy. Forecasts of Unemployment rising to above 10% should set off alarm bells, as this would represent a huge recession or perhaps even the dreaded ‘depression’ if this has legs. Equity markets are rebounding strongly and a restart of economies would avoid this dire scenario.

Governments are announcing huge stimulus packages and planning lock-down exit strategies. A return to work sooner rather than later, could signal a sharp ‘U-shaped’ economic recovery, rather than the continued lockdown driving economies into the ditch. Austria is leading European nations, returning to work, while US Governors are falling over themselves to announce their ‘unlocking’ strategies. Australia did not go into full lock-down, allowing essential industries to continue to trade, which included many operations.

China trade data showed that imports continued to climb and trade was being restored, giving markets confidence. The AUD continued to benefit the restored supply chain, moving up to 0.6425, while the NZD did not receive the same boost. The NZD lock-down is far more severe and no planned date for an exit strategy, has disappointed markets, pushing the NZD back to 0.6080, despite the weaker reserve.

Global markets are recovering confidence, as the focus shifts to lock-down exit strategies and the seeming containment of the virus. We are not out of the woods yet, but signs are positive and markets are reacting accordingly.

Collinson FX: April 13, 2020 - US markets regain confidence

Markets finished the week strongly, with US equities rebounding from March lows, as coronavirus infection levels looked to have peaked in major hotspots around the world. The modelling looks to have massively overestimated the infection rates and resulting deaths, providing some relief, giving markets renewed confidence. It appears authorities have been successful, in terms of ‘control and containment’, giving markets some reason to rally. Planning for a return to work is now underway and we can look forward to that in weeks rather than months.

The Fed launched a massive $ 2.3 Trillion stimulus package, that consisted of loans to small and medium sized business, plus an extension of bond purchases into investment grade and junk bonds. This enormous stimulus, via monetary policy, supported further gains in equities and a surge in risk appetite. The markets are looking forward and expecting a huge rebound. US Weekly Jobless claims surged to 6,606,000, while economic sentiment has plunged, but economic data has been largely ignored as markets focus on the coronavirus.

Fiscal and monetary policy has been extreme and have been largely successful, although the price to pay has not yet been calculated. The huge debt levels may never be repaid and the consequences will be far reaching. Central Banks will be forced to keep interest rates at zero, punishing investors indefinitely and forcing capital into other more risky investment strategies. How Governments respond to this overwhelming debt will need be imaginative. It will take an overhaul of the entire monetary system.

The coming week will continue to focus on the coronavirus, but attention will shift to planning for a return to open markets and perhaps more focus on economic data. It is essential economies return to the ‘new normal’ as soon as possible and strategists begin to plan the way forward.

Markets experienced another volatile week, losing some ground in equities, while Oil prices attempted a recovery. The global lockdown of economies, due to the spread of the coronavirus, has crashed demand for oil and Saudi Arabia and Russia have seized the opportunity. They have decided to increase production, to tank the price, in an attempted coup on higher priced oil producers. President Trump has begun negotiations to end the price war, in an effort to save US energy companies and a key US industry.

The coronavirus spread continues as Europe approaching the ‘apex’ and the US follows a couple of weeks behind. Preparations are being made for mass deaths across both continents and Australia and New Zealand will follow their timeline. This is the eye of the storm and markets now look for the light at the end of the tunnel. Markets are looking for certainty, in terms of the control and containment of the virus, so economies can begin to return to some form of normalcy.

The safe haven of the US Dollar remains valid, with the EUR falling to 1.0800, while the GBP dropped to 1.2270. Commodity currencies regained some lost ground, earlier in the week, but resumed the downward slide to close out the week. The AUD attempt to hold 0.6000, while the NZD crashed below 0.5900, seemingly vulnerable to market conditions.

This coming week will depend heavily on containment of the virus and the impact on global economies.

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