17:30 Strong finish in Europe as Germany approves €1.1tn stimulus
A bit of a funny old session but the positive sentiment is holding and we saw a very strong finish for the European session, cementing yesterday’s bullish rally in fine fashion.
The FTSE 100, along with its European peers, roared higher in early trade through to 09:30 before turning sharply lower taking out a low at 5395 by 11am. The market recovered though, and we locked in a +4 per cent gain for the day. Starting now to look to take out the 5700 leve, the March 13th highs. The DAX has had a tougher day, but came through good at the death to close up +1 per cent.
US futures were all over the place as well to begin, but Wall Street was broadly higher by the European close with the Dow up 900 points or so. Building off the gains of yesterday these are good solid back-to-back gains for the major markets.
The DAX certainly lagged peers in Europe. Traders in Frankfurt maybe were caught on the hop by the severity of yesterday’s 11 per cent jump. Also, maybe they are having to deal with the emotional trauma of the death of the German balanced budget. The ‘Schwarze Null’ ist kaput, after the German parliament today approved a €1.1 trillion package of stimulus. It rather reminds of Katherine Mansfield’s short story The Baron and the rather pitiful ending: “Next day the Baron was gone. Sic transit gloria German mundi.” On that note, German chancellor Angela Merkel continues to work from home quarantine. I trust she is imbibing nourishment in her room, much like the eponymous baron. According to Faz newspaper, Germans have not been this pessimistic since 1949.
As we approach the end of March, it’s worth noting just how bad a month and a quarter it’s been thus far, despite the pickup in the last couple of sessions. The FTSE 100 is down by around a quarter year-to-date and about 20 per cent lower this month. We can find just 3 shares that have risen in the last three months. Precious metals miners Fresnillo and Polymetal International have enjoyed decent rallies this year, largely on expected haven flows, while Ocado is barely positive, able to hold its head above water thanks no doubt to the belief that online grocery shopping is about the one real growth market in 2020.
More firsts – they come almost daily - came by way of the US Treasury market. US 1-month and 3-month yields turned negative – it’s the first time we have seen negative rates in the US, although of course fed funds rates remain positive. The Federal Reserve’s massive dose of stimulus and unlimited QE has crushed yields at the short end of the curve.
Looking ahead to tomorrow, all eyes are on the US weekly jobless claims, which are likely to be the best gauge so far of the coronavirus impact on the economy. Usually in the thousands, there are fears it could be in the millions this week due to the government shutdown. Consensus suggests a 1.5m print – way ahead of the usual numbers which trend about 200k week to week. Morgan Stanley has estimated in excess of 3m. Last week’s print rose to 281k from 211k a week before but the real impact of the coronavirus is to hit. According to Justin Trudeau, a million Canadians applied for jobless benefits last week – extrapolate that to the US and we could be in for true shocker of a print tomorrow.
Crude oil bounced off lows just under $23 and remains in a broad consolidation between $23 and 25. The US is trying to pressure Saudi Arabia to ease production. Inventory data showed a build of 1.6m barrels, short of the expected increase, but one-week demand for fuels dropped by the most since Dec.
In FX, GBP traded in pure RoRo fashion, broadly moving higher against USD through to 09:30 before it came off through the rest of the day testing lows around 1.1640 and then jumping sharply int the fix at 16:00 with an aggressive move back through 1.1750 and following through beyond 1.18. EURUSD was calm, holding a consolidation within the 1.080 to 1.0850 range for the day.
US Treasury Secretary Steven Mnuchin takes a phone call in between meetings as negotiations continued on a $2 trillion economic stimulus last night
08:30 Markets rally after Congress deal
Stock markets rose this morning. To be a little more descriptive, it’s a sea of green on the boards with investors lapping up the $2tn stimulus package finally agreed by the United States Congress last night. Ahead of this the Dow Jones surged over 11 per cent, notching its best day since 1933. The DAX in Germany also climbed 11 per cent higher to breach the 9200 resistance. The FTSE 100 climbed 9 per cent. Japan’s Nikkei rose 8 per cent.
This morning shows more progress for equity markets although gains are more modest as it looks like the market found bid chiefly on expectations of the deal – buy the rumour, buy the fact more carefully at this point. The FTSE 100 rallied again through last Friday’s peak at 5428. The next step forward is to the previous Friday’s peaks at 5700. You can note the positive MACD turn on the daily chart through the signal line in relatively oversold territory plus emerging three white soldiers after a period of intense volatility and indecision evinced by the long wicks on a series of dojis.
The DAX is also showing positive momentum and we note a tentative formation of a three white soldiers candle pattern, a traditionally bullish formation that often marks the end of a downtrend. Again the MACD looks promising.
As I’ve noted for the last few days, there have been growing signs of stabilisation. The kind of bear market bounce yesterday was rather against the narrative, but nonetheless pulls us further off the lows. You get these kind of mega-rallies when the market is heading lower. Therefore, as I keep saying, I’d prefer to see smaller daily swings to believe that stabilisation, or even a market bottom, has been established. The stimulus is now by and large in place, the question is whether it’s enough for the markets or whether the expected spike in cases and deaths in the US and Europe, combined with the emerging picture of the economic damage, means we need to take another leg lower before the bottom is found.
US futures markets are somewhat more cautious looking this morning and again we look to Friday’s highs during normal trading hours at 2453 as the pivot.
Crude oil has stabilised around $24.75 for WTI, with momentum rather falling flat for bulls seeking to make new highs north of $28 to break the bears’ hold. Gold is paring gains after three straight days of progress, finding support at $1606 and the 61.8 per cent retracement of the decline through the middle of the month.
Dividends dropping like flies
More bad news on RNS this morning. Halfords is modelling for sales to fall by a quarter and is cutting orders with suppliers drastically. Dividend suspended. We’re also seeing dividends suspended at housebuilders Persimmon and Bellway.
Likewise DFS, where management has cancelled the interim dividend to save £8m. DFS has closed all showrooms, manufacturing and distribution operations in the UK, Ireland and Spain. Ignore this hopefully short-term furlough, the broader economic impacts of Covid-19 – specifically a likely recession, expected high unemployment and generally consumers pulling larger purchases will create a tough environment for DFS.
Rentokil Initial had thought the impact would be limited and largely confined to China – much like many of us. But today management say they expected a much more significant impact on operations in Q2 and beyond. Guidance pulled.
Utility companies are defensive for a reason – United Utilities today said full year results are in line with profits ahead of last year. Revenues are fixed for five years, so it can recover any losses in subsequent years.
Neil Wilson is chief markets analyst at Markets.com
