Week Results: China, the euro and oil problems
The past week has already habitually passed in the analysis of news around the coronavirus. The main result was the restoration of economic activity in China, which greatly reassured investors, and they returned to the usual occupation in recent years - the purchase of risky assets. As a result, US stocks updated historic highs.
At the same time, one cannot but note the opposite trends - gold was in stable demand, but oil was under pressure. This already indicates that investors are seriously worried about the consequences of the epidemic, which are primarily manifested in a sharp decrease in demand for energy assets (the International Energy Agency even predicted the first quarterly decline in oil market demand in 10 years).
Investor fears are much easier to understand than optimism in stock markets. Fears are something rational: it is not clear what real economic damage China and the world as a whole will be caused by the epidemic. Do not forget that the root of the problem may lie not even in the fact of a slowdown in economic activity, but in the ability of China to service its debts, which have already reached 300% of GDP. And the epidemic is still only growing: the number of deaths has approached 1700, and the number of infected has exceeded 50,000 (according to WHO).
But optimism is something from the field of irrational and emotional. Since we believe that, in the long run, proponents of a reasonable assessment of the markets will be right, we, therefore, continue to recommend sales on stock markets as well as purchases of safe-haven assets.
Speaking of sales in the US stock market. The Federal Reserve Bank of New York announced that they will reduce the volume of interventions in the repo market. That is, cash injections will decrease. Which is very likely to provoke a decrease in demand in the stock market.
In addition, this week we will look for opportunities for sales in the oil market. At least, if there is no news that Russia has decided to support Saudi Arabia and agrees to increase the volume of reduction in oil production. Well, or the epidemic will rapidly decline.
In addition, this week we will continue to look for points of sale for the euro. The single European currency after a series of weak economic data, including a failure in industrial production, and close to zero GDP growth Euro zone looks extremely vulnerable.
As for macroeconomic statistics this week, on the whole we are waiting for a relatively calm period. So, the markets will continue to follow the news from China and work out them first of all.
At the same time, one cannot but note the opposite trends - gold was in stable demand, but oil was under pressure. This already indicates that investors are seriously worried about the consequences of the epidemic, which are primarily manifested in a sharp decrease in demand for energy assets (the International Energy Agency even predicted the first quarterly decline in oil market demand in 10 years).
Investor fears are much easier to understand than optimism in stock markets. Fears are something rational: it is not clear what real economic damage China and the world as a whole will be caused by the epidemic. Do not forget that the root of the problem may lie not even in the fact of a slowdown in economic activity, but in the ability of China to service its debts, which have already reached 300% of GDP. And the epidemic is still only growing: the number of deaths has approached 1700, and the number of infected has exceeded 50,000 (according to WHO).
But optimism is something from the field of irrational and emotional. Since we believe that, in the long run, proponents of a reasonable assessment of the markets will be right, we, therefore, continue to recommend sales on stock markets as well as purchases of safe-haven assets.
Speaking of sales in the US stock market. The Federal Reserve Bank of New York announced that they will reduce the volume of interventions in the repo market. That is, cash injections will decrease. Which is very likely to provoke a decrease in demand in the stock market.
In addition, this week we will look for opportunities for sales in the oil market. At least, if there is no news that Russia has decided to support Saudi Arabia and agrees to increase the volume of reduction in oil production. Well, or the epidemic will rapidly decline.
In addition, this week we will continue to look for points of sale for the euro. The single European currency after a series of weak economic data, including a failure in industrial production, and close to zero GDP growth Euro zone looks extremely vulnerable.
As for macroeconomic statistics this week, on the whole we are waiting for a relatively calm period. So, the markets will continue to follow the news from China and work out them first of all.
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