Market Wrap: The rebound on stimulus hopes loses momentum. Brent below $30

A bigger picture is starting to emerge of how governments are responding to the pandemic and that in itself offers some needed certainty. Authorities are trying to balance economically damaging travel restrictions and social distancing rules with cheap loans for businesses and some relief to households.

Stock markets managed to finish positively on Tuesday amid a flurry of new fiscal stimulus measures. Gold closed substantially higher too so the moves in the stock market are partly just a rebound from oversold levels that can easily reverse.

The FTSE 100 tuned higher on the prospect of new financial measures from Chancellor Rishi Sunak. Other European benchmarks including Spain's IBEX 35 reacted positively to a massive new 200 billion euro stimulus in Spain.

The rebound seems to be losing momentum as of Wednesday. The magnitude of the pandemic is outweighing stimulus hopes.

As far as short term investors psychology. You know that no government policy can stop the fallout from the coronavirus so you're not ready to buy but if the blow can be cushioned a little you're not in quite such a panic to sell.

The EU now agreeing to close its external borders. It smacks of the closing the gate after the horse has bolted. Italy was and continues to be the biggest fear factor inside Europe. The number of coronavirus cases in Italy shot up to 31,506 from 27,980 yesterday, up 12.6%.

Sunak described a massive new UK stimulus as unprecedented, and it is. The UK Treasury will offer £330 billion in loan guarantees and will buy commercial paper to help businesses weather the storm. Affected households will have tax relief and a mortgage holiday. We just have doubts about whether any government can execute complicated measures in time when the support is needed ASAP. That's why helicopter money is gaining traction.

The White House is proposing a $1 trillion emergency stimulus because US unemployment could hit 20%. New York City coronavirus cases have risen by 300 in a day and we'd expect the numbers are going to shoot up as US expands testing. The Las Vegas strip is shutting for 30 days. Markets like the solution but not the reason for the stimulus.

The dollar had a blockbuster day across forex markets. The prospect of direct cash payments to Americans is dollar-positive because it doesn't involve outright currency debasement like quantitative easing. QE is printing money to buy government bonds while the cash payments as touted so far would be funded by government debt. If the cash payments were to be funded by central banks printing the money out of thin air, that's helicopter money and should be a negative force on the currency.

GBPUSD is back to its post-Brexit low near 1.20, EURUSD slid over 200 pips below 1.10 and notably AUSD fell below 0.60 for the first time since 2003.

Brent crude oil is back below $30 per barrel on Wednesday. After consolidating for a week the breakout in oil looks to be to the downside. The sheer size of the demand shock without OPEC intervention means another jolt south in oil prices seems more likely than not.

 

Opening calls

FTSE set to open 228 points lower at 5066 DAX set to open 393 points lower at 8546 S&P 500 to open 122 points lower 2407