Figure 1: Distribution of coronavirus infections
As for the coronavirus vaccine, about 80 teams around the world are involved in research and the first trials are already underway. For example, the British Health Secretary Matt Hancock said on Tuesday that testing of a vaccine developed by Oxford University would begin on Thursday. However, most experts agree that the vaccine could be available in the first half of 2021. There are no guarantees that the vaccine will be developed.
As for the oil and the impact of its cheap price on stock markets, according to JP Morgan, energy shares account for only 3% of the SP 500 index and the impact of recent news is already included in prices. But the problem could be in the future if the US oil producers file for bankruptcy and fail repay their loans. Then the crisis would spill over into banks' balance sheets and this could negatively affect further developments in the indices. The situation with an oversupply of oil in the market has not indicated any signs of improvement that would support oil prices.
From the important economic data last week we select:
- In the US, more than 22 million people have applied for support in an unemployment since March 2020. Rising unemployment has a negative impact on the decline in consumption, which is the engine of the economy.
- Industrial production in March in the USA fell by -5.4% month-on-month (in February it was 0.5%). For comparison, in the crisis in 2008 – 2009 it reached the lowest value -2.8%.
- Retail sales in the US fell by -8.7% in March (down from -0.4% in February). In the crisis of 2008 – 2009 the lowest value was - 2.8%.
- German sentiment index ZEW surprised with a value 28.2 (previous month – 49.5). It shows investors ‘trust in economic improvement.
- In China, industrial data were better than expected in March as the month-on-month decline was only -1.1% while in March it was -13.5%. However, this is not a reason for optimism yet, because the problem is the fall of global demand.
- The US oil reserves have risen another 15 million barrels over the past week, according to the EIA.
That there will be bad data in 1Q/2020 is more or less clear and the market has already contained it. The key will be whether and how the crisis will affect the figures for 2Q and 3Q/2020
. At that time, the US elections will take place and the state of the economy is one of the decisive factors. Trump will want to win the election, so it can be expected that if the current incentives are not sufficient to restart the economy, further support will follow, which could further strengthen the indices.
Technical analysis as at April 22, 2020
The moving averages we use in the technical analysis are EMA 50 - orange line, SMA 100 - blue line, and SMA 200 - green line.
The NASDAQ is an index that, after the slump that occurred in the period from February 20, 2020, to March 19, 2020, is strengthening very fast. It has already erased 62% of the slump
The NASDAQ Index
. However, significant corrections are to happen in bear markets. The reason for current rise is that 48% of the index consists of technology companies, such as Netflix or Amazon, which might profit in times of quarantine. Nevertheless, it is not still clear how consumer behavior will change after quarantine.
In Figure 2, we have the NASDAQ index on a daily time frame: