February 17, 2020

Expect Low Liquidity In Markets As US Is Closed

We are expecting low liquidity in the markets as the US stocks are closed today for Presidents Day. This pattern of low liquidity is normal whenever the biggest market in the world is closed. Investors do not like to trade large sums when they aren’t sure in which direction the big players are moving.

So far, buy the dip is the most prominent strategy among traders. This pushed the US stocks higher on Friday and the momentum was picked up by Asian markets.

The Chinese CSI index has recovered all of its losses since it resumed its trading.  Market participants are expecting increased support from the People Bank of China. Only recently the Bank announced several monetary policy measures, including lowering one of its interest rates–to enhance the liquidity in the system which eased off funding conditions in the Chinese money market. Speculations are emerging that there are plans of reducing corporate taxes, fees and allow banks to run their non-performing loans for a bit longer.

Overall, the Japanese markets fell despite the fact that the put-to-call ratio for open interest favors large upside move. The Nikkei index fell by 0.64%. The Aussie benchmark index traded fractionally lower by 0.09%.

The hope among speculators is that Coronavirus will have a short-lived influence on the markets.  The change in the methodology of measuring Coronavirus has raised more questions. Investors do have their qualms about the mortality rate as every single day the reported infection number is significantly higher. China has reported an additional 105 more deaths today and the infection number soared to 2,048 new cases.

In order for confidence to be fully restored, we need to see the factory operating rate returning to its normal mark. So far, we are seeing factories re-opening at a very low rate and most of them remain closed following their extended holiday period.

Commodities- What Can Move the Price?

In terms of commodities, we experienced a massive rally in the gold price last week, but its price has started the week on the back foot today. The hopes are that the shining metal would touch the price level of 1600 due to the softness in the US retail sales number which failed to beat the forecast and the US industrial production number which was immensely poor.

This risk-off sentiment should prompt traders to park their money in gold. The biggest event for the gold price is the upcoming FOMC meeting, it is likely to bring higher volatility. It is the tone of the FOMC meeting minutes which can impact the odds of another rate cut by the Fed. Remember, last year, the Fed cut the interest rates three times and so far, this year, they have been reticent with respect to their reaction. So far, the odds of Fed cutting the interest rate sit at 30% and if their tone indicates a dovish stance, we could see a sell-off in the dollar which should be positive for the gold price.