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Dire US data send stocks spinning, dollar flying higher

XM.COM

    • Fears of global economic slump heightened after dreadful US data
    • Flight to safety hammers stocks, lifts dollar
    • Talk of easing lockdowns fails to comfort markets


Markets spooked as gloomy predictions start to turn to reality

Reality has come back to bite the markets, taking the steam out of the relief rally in stocks, as investors grapple with the prospect of economic devastation from the virus pandemic. Data released in the United States on Wednesday showed a record slump in retail sales and industrial output in March, inflaming fears about the worst-case scenario of the damage from COVID-19 on world economies.

After the initial virus sell-off in March, markets had been on a roll, with the S&P 500 recouping more than 50% of its losses, as sentiment was bolstered by the plethora of stimulus. However, whilst the central bank and government interventions may have been good reason for the panic to ease, many analysts have been questioning whether that was enough justification for such a strong rebound given that the outlook has never been so uncertain.

The gloom is only expected to get worse, with the next key indicator for the US to come from the latest weekly jobless claims. Initial claims for unemployment benefits are expected to have surged for a fourth straight week, though at a slower pace. However, with US job centres struggling to cope with the swell in the number of claims, there is a risk that the actual figure could shoot above the estimates due to the large backlog of cases, triggering another wave of selling in the markets.

Stocks steadier after tumble, but dollar extends gains

Global stocks were on a steadier footing on Thursday as some optimism remains that the lockdowns that have paralysed economies around the world will end soon. Stocks in Asia ended mixed, with Chinese indices reversing higher to close in positive territory as investors eyed tomorrow’s first quarter GDP numbers. European shares also opened higher and US futures firmed as well, signalling the market tone is likely to improve during the course of the day.

However, the safe-haven US currency remained well supported alongside gold, with the dollar index coming just shy of the 100 level. The euro, pound and Australian dollar were down sharply for a second day. Reports that the UK will extend its lockdown for another three weeks weighed on sterling, while a much smaller-than-expected increase in Australia’s jobless rate failed to provide any boost to the aussie.

The New Zealand dollar was also under pressure after the RBNZ governor said he does not rule out negative interest rates. But the Canadian dollar managed to stabilize following Wednesday’s plunge from the Bank of Canada’s decision to expand the range of assets in its quantitative easing programme.

Focus on lockdown exit strategies

Going forward, as stimulus news takes a backseat and it becomes increasingly evident that the number of new virus cases are levelling off in more and more countries, the market’s attention will likely be on the speed of lockdown measures being lifted and whether doing so will spark a second wave of infections.

Germany became the latest country yesterday to announce some easing of restrictions and Australia and the US could soon follow. Several US states that have not been as severely impacted from the virus outbreak have signalled they may begin relaxing some measures as early as May 1.

This may be good news for investors in the short term but at the same time, more market wobbles should be expected as the full economic cost becomes clearer. It also remains to be seen what effect a partial reopening of businesses will have on the number of new infections.

XM.COM Review

Source: https://www.xm.com/daily-market-comment-dire-us-data-send-stocks-spinning-dollar-flying-higher-120527
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