Risk Returns, But Can It Hold?

March 9, 2020

  • Equities rebound by 5%
  • Part of Hubei province go back to normal
  • Nikkei 0.89% Dax 3.36%
  • UST 10Y 0.72%
  • Oil $33/bbl
  • Gold $1660/oz
  • BTC/USD $7908

Europe and Asia:

  • No Data

North America:

  • No Data

Risk rebounded with vengeance in Asian and early European trade today with U.S. futures rising by 4.5% as markets awaited a press conference from President Trump regarding U.S. fiscal measures to help combat the economic slowdown caused by the coronavirus outbreak.

In China meanwhile, the caseload rose just by 19 and some parts of the Hubei province which was the epicenter of the outbreak are starting to return to normal conditions. The Chinese have also announced that they have closed all the temporary hospitals built in order to treat the coronavirus patients as further sign that the virus is starting to recede.

In Europe however, no such signs of a slowdown as Italy is now on full countrywide lockdown and cases in France and Germany inch above the 1000 mark.

The bullish thesis is that by the end of March China should return to almost normal capacity, but no one can say if the resumption of social contact could trigger a second wave of infection in the country. Meanwhile, the virus is likely to linger on at least through April in Europe and North America and markets will be keenly watching the rate of new caseloads ex-China for any signs of the global slowdown.

Against the general backdrop on consumer slowdown in G-3 economies, the markets are also grappling with the ongoing oil war between Saudi Arabia and Russia. The Saudis have announced an output increase to 12.5 million barrels per day while Russia stated that it will ramp up output by 500bpd as the two vie to preserve market share in a price war. Oil was up today to $33/bbl on some short-covering flows but near multi-year lows and the great danger to the global energy sector is that this war of attrition will remain in place for quite some time triggering a series of bankruptcies in the industry that could have knock-on effects on the global financial system.

Therefore markets will be very keen to see how the Trump Administration addresses all of the factors today and want to asses the policy proposals for both consumer relief and business bailout plans as the virus wreaks havoc with the basic day to day functions of the U.S. and the global economy.

The rally in Asia and Europe has been driven by short-covering and bargain hunting flows but whether the bounce can hold will depend to a large extent on Trump’s message. If markets see little meaningful initiative on the fiscal front much of the day’s gains could evaporate once again.

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