02.03.2020 – Daily Report. The besieged bulls in global trade are counting on concerted action by the major central banks. A new wave of money should help in the economic defence battle against the corona virus. Indeed, Japan is making the first move – and the Fed is also signaling its intervention. But then the ECB speaks. The DAX gives back its early gains.
The DAX tries the countermovement
That was probably nothing: First the DAX rose to 12,119 points. Two reasons for this: Italy will provide aid to the economy of up to 3.6 billion euros next week. Germany is considering putting together an economic stimulus package, Federal Finance Minister Olaf Scholz (SPD) told the newspaper “Welt am Sonntag”. It would be time for a technical recovery in normal times: The Relative Strength Index for the DAX had been deep in oversold territory on Friday with only 19.9 points.
Damper from the ECB
After the initial recovery, however, the DAX turned south. Most recently, the leading German index was again 0.3 percent weaker at 11,857 points. This was because France’s central bank chairman put a damper on hopes of concerted global action by the central banks. According to Francois Villeroy de Galhau, the European Central Bank is prepared to support the economy if necessary because of the spreading corona virus. However, additional steps are not yet necessary, the ECB council member told the French radio station BFM Business.
Japan makes a start
Previously, Japan had been fuelled by hopes of a global intervention by central banks. The governor of the Bank of Japan, Haruhiko Kuroda, said on Monday that the central bank would closely monitor further developments and provide enough liquidity for stability in the financial market. With his breaking news Kuroda supported the stock market. The Nikkei index finally recorded a plus of 1 percent to 21,344 points on Monday. Previously it had fallen to a six-month low of 20,873 points. In the coming weeks, the Bank of Japan plans to buy billions of assets, it was already announced on Friday.
De CSI-300 finally rose by 3.3 percent to 4,070 points on Monday. In China, factory activity has plummeted to its worst level since the beginning of the recording. No wonder: Corona is paralyzing large parts of the economy. Which also boosted hopes of fresh money in China.
Possible concerted action by central banks
On Friday, the Fed had delivered the steep template for speculation on a global concerted action: US Federal Reserve Chairman Jerome Powell made his customary cryptic explanation that the Fed would intervene if necessary to cushion the economic consequences of the Corona crisis. In view of the “risks” posed by the virus, Powell said the Fed would “use its instruments and act appropriately to support our economy”.
Analysts hope for up to 100 basis points
Goldman Sachs poured plenty of oil into the fire of hope yesterday, Sunday: The goldmen expect the Federal Reserve to move rates by 50 basis points soon, perhaps even before the next regular meeting on 16th March. This move would be accompanied by a further 50 basis point cut in the second quarter. In addition, this is part of a concerted action by the world’s major central banks. So that was the rumour in the world.
The Bank Policy Institute lobby group was singing the same horn – according to MarketWatch, it expects an interest rate move of 50 to 75 basis points. The interest rate move will probably be announced on Wednesday morning. By the way, the author of the speech is Bill Nelson – and he once worked as an economist for the Fed, so he should still be well-connected.
Small rebound in New York
Of course the corona virus Sars-CoV-2 had dominated the events on Wall Street on Friday as well. At least the indices turned upward due to the Fed’s intervention, so that the losses were contained. The Dow Jones Industrial slid well below 25,000 points on Friday, closing down 1.4 percent at 25,409 points.
The Dow thus posted a weekly loss of 12.4 percent. The decline was even higher only during the financial market crisis in October 2008, when the US leading index posted a 10 percent drop in February – the worst return in eleven years.
The S&P 500 temporarily lost 3 per cent on Friday before picking up again. The final decline was thus moderate at 0.8 percent to 2,954 points. The Nasdaq 100 even managed to gain 0.3 percent to 8,461 points at the end of the day. Interestingly enough, the Nasdaq 100 bounced up to 8,139 points on Friday after a deep red start, bouncing right on the 200-day line. So even in times of panic, the chart analysis is still valid.
What the day brings
The diary on Monday brings some interesting events, you can find the overview as always here: Market Mover
Thus, the ECB Monthly Bulletin for February is due at 3:45pm.
At 4:00pm the ISM Industrial Sector Purchasing Managers’ Index for February will also follow in the USA.
And at the same time the US building expenditures are announced in January.
The Bernstein-Bank wishes successful trades and a profitable week!
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