(27 March 2020)DAILY MARKET BRIEF 1: A dead cat bounce or a sustainable recovery?

The jobless claims in the US rose past the 3 million mark last week, a sign that the covid-19 has started taking a severe toll on the US labour market and the US now has the most coronavirus cases in the world, hinting that the situation is about to get worse in the coming weeks.

But bad news was good news for the market. The US stocks indices rallied for a third consecutive day on hope that the tragic data would encourage the House of Representatives to approve the $2 trillion rescue package quickly. A vote is due today. House Speaker Nancy Pelosi said that the package will be approved with an overwhelming majority.

The Federal Reserve (Fed) Chair Jerome Powell on the other hand said that the Fed ‘will not run out of ammunition’ and will continue supporting the economy if more stimulus is needed.

The US dollar retreated for the third day against most of its G10 counterparts, but the US 10-year yield remained little changed near the 0.80% mark, as most investors remained skeptical about rushing toward the risk assets too early.

Coming sessions will show whether this week’s stock rally was a dead cat bounce, or the start of a sustainable recovery.
Trading in Asia was mixed, with most leading indices in positive except stocks in Australia and New Zealand. China’s announcement that it will close its borders from Saturday may have triggered an early downside correction in the antipodeans.

Activity on European and US futures hint that there will be some profit taking before the weekly closing bell, as well.
In the US, even if the House passes the historical fiscal aid package with flying colours, we could see a retreat in US stock prices in a typical buy-the-rumour-sell-the-fact behaviour.
Due today, the personal income and spending in the US could show some signs of weakness in February due to the coronavirus outbreak, but the real negative impact will likely start to be felt in March data. The University of Michigan’s consumer sentiment index could however provide a better perspective on the souring mood across the US at today’s print.
Gold is headed for the biggest weekly gain since 2008, and a part of its advance is explained by the thinning physical supply as refineries slowed or ceased activity due to the coronavirus shutdowns. But the latter caused liquidity issues across the gold markets, leaving traders wondering if the yellow metal offered the right protection through the shaky waters. Gold remained capped below $1650 per oz.

By Ipek Ozkardeskaya