The Only Thing Going Up in These Markets
The Only Thing Going Up in These Markets
The US Dollar has been making sharp moves as the only market trading in the green in the current economic crisis. On the US Dollar Index (DXY), the greenback has been living up to its name by making steady gains since the 9th of March, rising from below 95 points to above 101, the highest it has been since 2017.
This gain in the USD has been due to the fact that investors are now pulling out of other markets due to their extreme volatility, and withdrawing it back to liquid cash. The global economic uncertainty has caused the markets to fall with no bottom in sight.
The Trump administration recently announced a stimulus plan of $1 trillion, the largest of any country, as a response to the current chaos in the markets. As part of this plan, the government said they were talking about sending cheques of up to $2000 per month in order to offset loss of income, as well as being able to defer up to $1 million in income taxes.
These government interventions come after US stocks officially entered bear market territory upon the market open this week, with the Dow Jones Industrial Average having its second largest single day drop in terms of percentage in history. The Dow Jones has now fallen below the 20,000 point mark, erasing all gains made in the last 4 years in just one month. All 3 major stock indices, the Dow, NASDAQ, and S&P 500 have all fallen more than 20% for the month. And now the New York Stock Exchange has been temporarily closed, with plans for move entirely to electronic trading starting from next week’s market open as a precautionary measure.
Similarly, the price of WTI Crude is still falling dangerously, now falling below the $21 per barrel mark, and looking set to hit $20 very soon. There is growing concerns that the demand for oil will continue to drop, as more and more travel restrictions are put in place. People are being asked not to go to work, not to go to public places, and generally stay at home as much as possible. Of course there is also the continuing price war that Saudi Arabia has started, after the collapse of the negotiations between the OPEC alliance and Russia, which is what caused the massive price drop from $45/barrel to begin with. After that initial news crude oil plunged straight down to $28/barrel, before recovering slightly and consolidating precariously just above the $30 mark. However in recent days oil has begun to fall again, falling straight below $25 following stricter restrictions being placed in the US such as the US-Canada border being closed.
Despite these unprecedented changes it seems that the global economy is headed towards an inevitable recession that no country can avoid. While most are still waiting for next month’s jobs release data before making the official call, the general sentiment is that we are already in a global recession. All attempts made by the world’s governments to offset the economic damage boost spending have only been meet with pessimism as the pandemic worsens with no clear end in sight.
The Euro sees its longest streak in 15 years on the back of Christine Lagarde, announcing that the ECB will provide an extra $1T in stimulus to combat the effects of the Coronavirus. The Euro against the USD has spiked to 1.127 to just under 1.135 on the back of extra stimulus. Pointing to inflation and price stability as concerns, Christine Lagarde stated a “unanimous view that action had to be taken.” However, with over six years of Quantitative easing and negative rates, the Euro’s weakness has benefited its exporters. This may change as the ECB puts its foot down in trying to rescue Europe.
New Zealand has had no new Coronavirus cases in the past 13 days. America is about to top 105,000 cases. New Zealand went hard and fast. The United States Is barely squashing the curve. New Zealand is in the phase were politicians are arguing when to remove all restrictions. America is reopening to save a dwindling election. A stark contrast in the environment between the two countries. However, one thing remained constant – the returns in the major indices between both countries.
The US Dollar index weakens for the 7th straight day as investors’ appetite for risk increases. The AUD/USD has broken the 0.69 mark, with the USD weaker against its G10 currencies, with global indices rising on forward optimism on a quicker recovery from the effects of the Coronavirus. US Indices have seemed to quickly discount the effects of the protests as they continue for the 8th straight day.
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