March 9, 2020

Markets Are Out of Luck

Markets Are Out of Luck

Markets are completely out of luck as there is no prospect of good news which can help the current sell-off. Traders are largely disappointed that the OPEC+ failed to provide any kind of oil supply cut. Markets were expecting Saudi Arabia and Russia to put their differences aside and act in a way that would benefit the markets.

However, their failure to do so, dragged the energy stocks lower and yesterday we saw a massive massacre of energy stocks over in the Middle East. The fact that Aramco’s stock price traded below its IPO price says it all, and sadly, if there is no supply cut introduced or if the coronavirus situation doesn’t improve, I think the path of the least resistance is highly skewed to the downside for Aramco’s stock.

The fact that Crude oil is trading below the $30 mark is going to punish the European markets even more. A real panic mode is on and there is no place to hide for investors because the Dow Jones futures are also trading lower by nearly 1000 points.  

All of this confirms that the wild week that we experienced last week is turning into a wild month and sharp declines in the futures markets signal more turbulence ahead.

In terms of currency markets, the dollar weakness is something that traders are more focused on. The reason for this is that CME Fed Wacther tracker indicates that market participants are expecting more action from the Federal Reserve. According to CME Fed Watcher, the expectations are for the Fed to cut the interest rate by 75 basis points during its upcoming meeting in March, and this is despite the fact that the Fed has already delivered 50 basis points interest rate cut during its previous meeting.

But looking at the gold price, this is not the story that we are seeing. Yes, the price crossed above the 1700 mark yesterday but the fact that the price failed to move above the 1700 mark indicates that there is not much conviction among investors or simply the momentum has slowed. The price of gold has dropped below the 1658 today and is now trading at 1671. However, the chances are that it may cross the 1700 mark later today just because  investors are interested in riskier assets.

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