The last Monday of March 2020 seems to be starting quite optimistically in the markets. This is the first Monday in four weeks, which did not start with reaching the lower limit in US indexes. Futures contracts even indicate an opening above the last close. However, in terms of epidemics, the situation has not improved at all.
According to Hopkins University data, there are already over 720 thousand in the world COVID-19 cases, of which 145,000 was diagnosed in the United States, which is currently the epicenter of the pandemic, and over 97,000 cases were found in Italy. In a moment, Spain will exceed the total number of cases in China of 82,000. Unfortunately, the rate of confirmation of new cases is not slowing down. Hence, it seems that all kinds of restrictions will stay with us for longer in Europe, and in the United States, they can last even until the holidays. Currently, in the US, federal guidelines are in force until the end of April to recommend that citizens stay at home, which is expected to reduce the spread of coronavirus.
This may mean that the worst in the US economy might be still ahead of us. The first quarter may probably be fatal, but the second quarter may not be better. The situation is similar in Europe. Progress in the fight against the epidemic is currently limited, and health care is shaking. However, as you can see, this does not bother buyers of shares at the moment. After the announcement of the support package for people working in Australia and the purchase of government bonds by RBA, the local ASX stock index shot by over 8 percent. The Australian Government has promised to spend A$ 130 billion over six months to support the economy and working people. The Bank of Australia, in turn, bought A$ 3 billion of government bonds with maturities from April 2026 to April 2029.
Financial markets seem to respond positively to economic aid information – like a patient after an analgesic injection. However, this still does not cure the source of the problem, hence it is still worth being vigilant, because with the current expected volatility increases or decreases of 7-8 percent may be a potentially common phenomenon.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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