What constitutes a bull market? With another gain on the open the DAX today was 20 per cent above its March 18th closing level. So is the bear market over, in Germany at least? Maybe, maybe not. This probably says more about the way we measure markets and the arbitrary nature of classification and nomenclature. It’s why people get overly-excited about a $4 move in oil. For many this remains a bear market rally, or a bear market bull market perhaps?
Hopes that Europe could be at or near the very worst phase of the coronavirus have sent global equity markets firmly higher this week and we are seeing signs of a strong follow-on to the rally on Tuesday as technical levels have broken down allowing a bit of a momentum trade to play out. You can boil it down to the fact investors think we’re at peak, that lockdowns will ease, government and central bank stimulus are keeping the economic wheels turning and that the downturn will not be long-lasting. Such optimism could be gravely misplaced, but you can only play what’s in front of you. Hopes of stability coming back to oil prices are also an important driving factor.
Global equity markets enjoyed a very strong session on Monday, with stocks in Germany rising almost 6 per cent and Wall Street posting a 7 per cent rally. The FTSE 100 was the laggard, gaining a more modest 2.3 per cent, or 126 points.
Today, European bourses were trading around +3 per cent higher. Futures indicate another strong day for the US market, suggesting a good strong follow-on for this rally. Of note, the big risers are not defensives or tech but the worst hit by the outbreak – Carnival, Tui and EasyJet are among the top gainers today.
Deaths in Spain have fallen for four days in a row, and we are seeing a plateauing in cases in France and Italy. Austria and Denmark are easing lockdown restrictions from next week. Light at the end of the tunnel.
Boris Johnson remains in intensive care, with day-to-day responsibilities now under Foreign Sec Dominic Raab. The UK does not have same kind of clear succession plan that the US does in such circumstances. Sterling reacted negatively to news last night of the PM being admitted to hospital but has pared the losses to trade where it was before the news broke. There will be concerns about functioning of government should this not be a short visit to hospital. These are extraordinary times and the PM has a key role to lead the country out of this, take the big decisions like on when to end lockdown and get the economy moving. This will be very hard for stand-in. And he has got to be able to explain to country and give confidence why we’re doing things - again tough for stand-in to do for long.
Oil is trading higher on hopes OPEC and allies can agree to a radical production plan to strip supply out of the market. The usual confusion persists over whether we see one happen. Sources have been reported as saying the Saudis and Russia will agree to cuts, but only if the US joins the party. Donald Trump says he has not been asked. It may be moot – US shale output will be among the first to see production scale back in a big way.
The Reserve Bank of Australia left rates on hold at 0.25 per cent, only a few weeks after it cut from 0.5 per cent at an emergency March meeting. AUDUSD remains in a near-term uptrend, looking to target the 00.62 level, with horizontal support at 0.60. The ASX 200 fell 0.65 per cent as the central bank didn’t deliver that little bit of marginal stimulus.
Samsung profits in the first quarter beat expectations thanks to demand for chips for laptops and data centres due to the sharp spike in homeworking.
The S&P 500 broke out of near-term resistance at 2640 here on E-minis, the 38.2 per cent retracement level. March 13th highs are back in play at 2707 and offer the big test now. An upside breach calls for 2884.
FTSE 100 – breakout from the triangle carrying momentum forward towards the 26 March peak at 5825.
Neil Wilson is chief markets analyst at Markets.com
