March 23, 2020

Another Brutal Week Is Set To Begin

Another Brutal Week Is Set To Begin

US Futures are set to begin another brutal week after Asian markets tumbled in overnight’s price action. It is all about the surge in the death toll triggered by Coronavirus—the flashing red lamp on traders’ dashboards.

This is a time when politicians should stop bickering about their differences and do what is right for the public because if the situation is allowed to get out of control, the current episode of market sell-off could be profoundly uglier than in any previous crisis. The reason that I am saying that is Congress failed to agree on an aid plan for the US.

This has created panic in the markets, and the US futures dropped over 5% triggering the limit a down. The Dow Jones futures is trading over 700 points lower (at the time of writing this research note), and it is likely that we are in for a day that could push the Dow Jones over a 1000-point by the end of US trading session.

It is also important that during a time like this, official policyholders choose the right vocabulary and relay the message in a way that doesn’t create further panic. James Bullard, St. Louis Federal Reserve President, predicted that US unemployment could surge to 30% in the second quarter. A statement like this sends a shock wave and this pushes investors further to sidelines.

Elsewhere, governments are busy making sure that the public understands the meaning of quarantine and they are applying the necessary measures to make sure that there is no violation. For now, if there is anything that can stop or reduce the pace of the outbreak of Coronavirus is social distancing and quarantine.

In terms of money flow, the S&P 500 Vanguard ETF doesn’t show that there have been any signs of serious inflow in the equity markets. Investors are largely sitting in cash as they expect the markets to drop further by another 10 to 20%. If such a drop does take place—a highly likely scenario in my opinion—the overall drop from the all-time high for most of the markets would be over 50%, and that would be a massive buy signal.

In the commodity space, oil prices are back under pressure. The gas has come out of the recent oil rally that we experienced towards the end of last week. It appears the tussle war continues between Saudi Arabia and Russia over a supply cut and we are not far from the day when those extra barrels of oil will touch the ground. At that time, the current blood bath will become direr.

As for the gold price, the momentum isn’t strong enough to keep the price above the 1,500-mark, even though we are seeing some weakness in the dollar index today. The intriguing element is that with Dow Jones futures trading over 700 points lower, gold is still failing to shine.