April 6, 2020

European Markets Trade Higher

European Markets Trade Higher

Investors are shrugging off pessimism today and they are focusing on more optimistic things: the slowing death rate caused by Coronavirus. Italy, Spain, France, and Germany have all seen declining numbers. There is also optimism regarding New York’s mortality rate, but it may be premature to draw conclusion on anything further because the infection rate is still on the rise in New York.  But, as for Europe, especially Italy—the epicenter of the disease, the country appears to be heading in the right direction because the death rate is at its lowest point in two weeks.

Another element that is also playing in favour of bulls today is the prospect of removing the lockdown. The fact that policymakers have started to talk about the exit strategy (of the lockdown), has increased the prospects of life returning to normality–to some extent. This doesn’t mean that there are no qualms about the second wave of the virus —absolutely not.

The policymakers need to be immensely vigilant and careful before they make the idea of removing the lockdown mainstream, because if the second wave occurs with more intensity, we could be in a for a longer period of recession. This is why policymakers must not rush into opening the economy, but they can certainly improvise to improve the overall sentiment—after all sentiment is the key to getting the economy back on track.

Back in the UK, the focus is on Johnson’s health. The UK’s prime minister was hospitalised last night because of Coronavirus. The prime minister has already spent 10 days in self-quarantine. Sterling is trading lower against the dollar on the back of this news, and it is likely that the sterling-dollar may suffer more throughout the day. This is because there is almost certainly a lag of a week or two of coronavirus hitting the peak in the UK. Hence, the overall situation may become worse before it improves. The situation is pretty similar for the US however, President Trump thinks that the outbreak may be leveling off in the US.

Nonetheless, this remains a healthcare issue and the only way to level anything is quarantine and mass tests.

As for the economic impact of this virus on the global economy, one doesn’t have to go far to see this. The US NFP data released on Friday paints a pretty good picture of this. The economy lost 701K jobs in March and the labour market looks even more dire if one pays attention to the weekly jobless claims number that printed 9.9 million. The saddest element is that the upcoming numbers are going to remain under the influence of Coronavirus, in other words, the economic numbers are likely to become worse before we see a bottom.

OIL

In the commodity space, the much-touted OPEC+ meeting has been pushed until Thursday. But the fact is that the meeting is still taking place, and this is all that matters. Hence, we have not seen much drop in oil prices. The WTI Crude is trading above the $27 price mark still, and this keeps the door open for the oil price to touch the level of $35. The $35 price mark remains the optimal point for now because it is the demand that is stopping the price from moving higher. If the global lock down starts to ease off, we could see the oil price improving a little more.

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