Coronavirus and markets in the week 14/4 – 20/4/2020
The total number of cases infected with coronavirus is nearly 2.5 million, of which 652 thousand are cured. As the growth of infected cases is slowing down, some governments are considering relaxing restrictive measures. The evidence of how the restrictive measures dampened demand is Monday's oil crash, where the WTI oil price reached historical negative value. This was reflected in the weakening of the Canadian dollar. Speculators on the euro have further strengthened their positions, expecting the euro to appreciate, but this has not happened yet.
A summary of the most significant events of the past week is here:
- The total number of infected with the coronavirus as at April 20, 2020, is 2,483,000 cases. The highest numbers are in the USA (793,000), Spain (200,000), Italy (181,000), France (155,000) and Germany (147,000). As the growth of new cases is slowing down in these countries, governments are beginning to announce plans for loosing of restrictive measures.
- Some emerging economies, such as India, where there are currently more than 18,000 cases, remain at risk. The situation in Russia, where there are more than 52 000 cases, twice as much as in the previous week, is also of concern. Very low numbers of infected cases have been reported in Africa.
- An example of how coronavirus affects a demand are low oil prices, as the WTI crude oil was traded on Monday at a negative price of $-38. The reason for this is, in addition to low demand for this commodity, also the approaching limit of the storage capacities.
- The US reported a further increase in unemployment insurance claims. Last week, 5.2 million unemployed people applied for support. In total, since March 19, 2020, 22 million unemployed have applied for support. Before the outbreak of the pandemic, the total US workforce peaked in February 2020, with a total of 165 million people employed. Currently, unemployment in the US is around 17%.
- Retail sales in the US dropped to -8.7% in March, it was -0.4% in the previous month.
- The Philadelphia Fed Manufacturing Index (it measures the level of economic activity in Philadelphia) plummeted to - 56.6 (the lowest level in the last crisis 2008–2009 it was - 41.3).
- Consumer confidence in the economy fell to -17.7% in Australia. Last time it was at similar levels in 2006.
- Surprisingly, the labor market situation in Australia has improved. Instead of the expected drop of 40 thousand jobs, there was an increase of 5.9 thousand jobs in March.
- Bank of Canada left the interest rate at 0.25%.
- China's 1Q GDP fell on a year-on-year basis to -6.8%. In the previous quarter, it was 6.0%.
- China's central bank lowered the rate from 4.05% to 3.85%.
Let's see how big traders react to the situation and what is the market sentiment on selected instruments. The data is based on the COT report, which is regularly presented every Friday and shows the number of positions of large speculators in the futures markets in New York and Chicago. Traders use this information to decide whether to speculate on the decline or the strengthening of the instrument. A positive number means an expectation of a strengthening of the instrument, a negative number means a weakening.
Table 1: COT report - position of large traders
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The euro has been bullish for 5 weeks as the overall net positions of the big players rise. However, the price of the euro against the US dollar has not appreciated yet. The bullish sentiment continues on the Japanese yen as well.
The reason for the negative sentiment on the Australian dollar is a dependence on the Chinese economy, which is strongly affected by the pandemic coronavirus.