March 30, 2020

European Markets Trade Lower

European Markets Trade Lower

European markets are trading lower as investors have failed to shrug off concerns from Asian markets. However, equity markets have not hit daily limits down or up, and this is the first Monday in nearly four weeks that markets have not done this.

Asian markets started the week on the back foot and the equity markets have suffered another down day. Investors are wary of the economic impact of Coronavirus on the global economy.

More than 720,000 people have been infected by this virus worldwide and over 33K have lost their lives. Throughout this month, markets have witnessed enormous volatility due to this virus.

The Nikkei index dropped over 1.57%, the Shanghai index fell 0.84% while the Kospi Index rose 0.46%.  

Policymakers around the globe have been busy in providing fiscal and monetary policy support to help soften the overall blow. Despite this, many are still questioning if the current measures are enough to support the recovery.

The ongoing global lockdown is unprecedented and it is really difficult to say when the situation will return to normal. Some have touted 6 months for the virus situation to return to normality, but again there is still no clarity.

President Trump has lengthened the national social distancing guidelines. The new extension will be in force  until April 30th, and this means a U-turn from his previous strategy where he wanted the economy to re-open by Easter.  

Back in Europe, the silver lining appears to be in Italy, the number of deaths decreased for the second consecutive day yesterday. However, the national lockdown continues, and the deadline has been extended beyond April 3rd.

As for the commodity markets, the dark clouds continue to gather , the crude oil price fell further last night. Brent has touched the lowest level since November 2002. The price is down over 6% while the US West Texas intermediate WTI dropped below $20 to $19.92–the lowest level in nearly 18 years.

The demand equation has been hit hard due to the coronavirus pandemic and the on-going supply war between Saudi Arabia and Russia is creating chaos. The oil giant, Saudi Arabia confirmed on Friday that there are no talks with Russia over curtailing of oil supply.

The fact is that demand shock is what matters the most for now, and the moment we see any improvement in this, the extra supply will be consumed. But until then, the cartel needs to make sure that the supply is on the leash because, without that, the price meltdown will only worsen.

There isn’t much time left until the current agreement  expires, and if there is nothing agreed before the end of this month, this means that everyone can pump as much oil as they can by the beginning of next month.

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