The gradual re-opening of the world economy has hit a speed bump, and this particular qualm among investors has started to make them uncomfortable. The question on their mind is how it will influence growth? One thing is for certain that a large number of companies have taken big loans during the coronavirus pandemic. If these companies can’t return soon enough to business, the debt burden will have no mercy on them, and as a result, they will be crushed under its weight.
The biggest worry is for the airline sector as they are under heavy debt. Some of them, such as American Airlines, have even used their air miles to raise further debt, and it seems like they will have no choice but to raise more debt in the coming days. Over in Europe, we have companies like British Airways, which are likely to become a short selling target among speculators because of their weak balance sheet. TUI, a German travel company, hardly recovered some of its losses, and the fact that re-opening of the German economy has been pushed to April, this will continue to adversely influence the stock.
But in reality, the best-laid plans often go away, and investors need to be ready for such a situation no matter the circumstances. This is one of the reasons that we have started to see the VIX index coming back in demand. The index surged over 7% yesterday as investors have begun the process of buying insurance for their portfolios.
On the other hand, optimists already expected the first quarter to be full of obstacles, and they also expected several other speed bumps throughout this year. Their belief is that the worst is over when it comes to coronavirus, and the fact that every day we are getting more people having their vaccine shot, is a good sign for the global economy. These optimists believe that the rebound in Q2 will be sharp, and growth numbers will begin to surprise investors and traders. This is the reason that we still see most of the European equity markets, especially the DAX index, in particular, still trading near their record highs.
As for the US, Jerome Powell is still in the camp where he believes that inflation is not a big issue. In his appearance before a House Committee yesterday, the Chairman confirmed that the Fed has several tools to address the inflation issue if it sees the situation going out of control. Both Jerome Powell and Janet Yellen, the US Treasury Secretary, didn’t seem to be concerned about inflation and soaring bond yields. This gave market participants some assurance. Both of them will speak later today again as well, and market players will be listening to them very closely.
Oil prices are a bit more stable today after their sharp decline yesterday when prices fell over 6%. The fact is that it was a given that the supply and demand equation was going to go out of whack with oil prices so high. Americans were going full steam in pumping oil out of the ground because drilling oil became a lucrative business once again. As a result, inventories started to rise. Later today, we will have the fresh crude inventory data, and if the data reconfirms the above concerns, we could easily see further sell-off for oil prices. (more on oil trading)
As for stocks trading, Intel is likely to be on the traders’ dashboard as the company has finally decided to be on top of its game once again. Investors have liked the fact that intel will be spending $20 billion to strengthen its chip arm.
GameStop reported its earnings yesterday, and the stock missed both its profit and sales target, which resulted in the company’s share price going lower in the after-market hours yesterday. Today, we expect the stock to become highly volatile as the war may begin between bulls and bears.