It seems that financial markets, just like during the Great Financial Crisis, are starting to shift to a situation where the worse for the economy, the better for stock markets. After yesterday's drop in indices, today the mood seems much better, all on the day before the ECB decision and announcement.
On Wednesday, European stocks seem to be rising again after Tuesday's biggest one-day drop since January 29. Stock indexes may be impacted by the ongoing season of corporate quarterly earnings releases. Technology stocks in Europe were among the best performers after ASML raised its full-year sales forecast. Akzo Nobel, Roche and Heineken also reported strong quarterly results. Meanwhile, a rise in the incidence of coronavirus in some countries, including India, and the risk of further travel restrictions and limitations have limited potential upside. Investors are also awaiting Thursday's European Central Bank monetary policy decision, with Christine Lagarde expected to maintain a dovish tone.
In Europe, sentiment is also not spoiled by events from Japan, where the Nikkei 225 fell more than 2 percent on Wednesday on growing concerns about possible coronavirus restrictions in Japan's major cities. National media reported that quasi-emergency measures have been put in place in some parts of the country, with Osaka asking for a full state of emergency to be declared on Tuesday. In the latest data, Japan's industrial output fell 1.2 percent in February. Exports rose 16.1 percent y/y to a near 3-year high in March, while imports rose 5.7 percent y/y to a 14-month high in the same period.
Concerns about the spread of the outbreak outside of Europe were also expressed by the World Health Organization, which may have pushed U.S. Treasury bond yields back, and may have pushed gold prices up to $1,782. In the foreign exchange market, on the other hand, the Swiss franc and the Japanese yen seem to be strengthening. Meanwhile, the yield on the 10-year Treasury note stood at 1.56 percent on Wednesday, up from peaks of 1.78 percent recorded in March. Investors are increasingly concerned about the coronavirus pandemic as infections are on the rise in several countries, including India and Japan, raising the prospect of further travel restrictions and limitations. Investors are also watching the latest corporate earnings and awaiting results from large technology companies for further information on the private sector recovery. Financial company results beat expectations by 38 percent, while other companies in the S&P 500 index surprised on the upside by 12 percent, according to Credit Suisse data.
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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