WHAT MOVED THE MARKET

Stocks Up, Economy Down
19th April

Adam Bi

The coronavirus is still torturing the global economy with bleak data keeps coming. China on Thursday announced its GDP shrank 6.8% in the first quarter of 2020, the lowest in its recorded history, which foreshadows the pain expected in the U.S. and around the world. US retail sales, a measure of purchases, fell by 8.7% in March from a month earlier, also the most severe decline on record. Though investors are constantly exposed to bad news in recent weeks, stocks still go up. In the past two weeks, the Dow Jones index rose 15%—its best performance since 1938. S&P 500 and Nasdaq Composite also surge. The Federal Reserve’s massive stimulus plan and the government’s effort are the main reasons for the rebound, which give investors confidence in a so-called V-shaped recovery, a sharp slowdown followed by a quick recovery. Besides, surgent in technological stocks also helps strengthen the indexes. Concerns still exist among investors, but many of them still “hold their noses and buy”, said an analyst.

Figure 1

Historic Oil Output Cuts
19th April

Allan Liao
 
Key crude oil producers Saudi Arabia and Russia along with other OPEC nations and allies have engineered a production deal to end months of crude oil price war ignited by evaporating demand. 9.7 million barrels per day (10% of global supply) will be cut from global oil production in the period 1 May – June 30, 8 million on 1 July – 31 December and 6 million 1 January 2021 – 30 April 2022. These cuts are implemented to ensure a surplus won’t be created in the next quarter but analysts are skeptical that this goal can be met. Goldman Sachs speculates only 4.3 million barrels will be actually cut in the conviction that no amount of production decreases can offset the 19 million barrels a day average demand loss over April to May. Until the first month of cuts begins in May, it is anticipated that OPEC nations will significantly increase production and flood the crude market, the high competition and over-supply may lead to a further drop in crude prices. The ones to feel the greatest impact will be production nations. Russia’s greatest revenue source is from its oil and energy exports which have decreased by 87% in recent times, although its policies cushion blows to the budget from oil shocks, a prolonged oil slump will be detrimental. Oil-producing nations in Africa and the Middle East are having similar experiences, political instability is a strong possibility. Meanwhile, Saudi state-run Aramco is offering bargain prices on its crude reserves to Asian refiners, exceeding analyst expectations of a $3.63 slash per barrel of crude in May to a $4.20 slash. Russia, America, and smaller Gulf states follow in making their crude surplus marketable with deal sweeteners such as select day delivery. This strong competition may lead to a second price war over the Asian market. Meanwhile, China has fully taken advantage of this easy bargain hunt to bolster its strategic reserves with the target of 503 million barrels by the year’s end. Russia, Saudi Arabia, and OPEC allies are highly likely to re-engineer cuts in the near future

TECHNICAL ANALYSIS

EUR/USD

Jasmine Wong
 
As a result of the coronavirus, the EURUSD pair is currently on a long-term downtrend with the Euro now facing speculations that may put it into recession. During the week, a high of 1.0990 was attained before starting a strong bearish move downwards that was dominated with large-bodied bearish candles. It broke the 1.0922 support level where it was then retested as resistance to then break the 1.0889 level. The pair reached its lowest support level of 1.0813 since April 7th before rebounding up to a major resistance level of 1.0889 to then continue its downtrend. According to the RSI indicator that measures whether a currency is overbought or oversold, it shows that the price went into the oversold region on the 15th April which was then followed by significant bullish momentum. Two more significant pullbacks were formed where the RSI was near the 30 levels, with the most recent pullback rebounding much higher to the 1.0889 level. Now, the price may consolidate between the major 1.0813 and 1.0889 levels before continuing its long-term downtrend momentum if recession fears outweigh coronavirus optimism. On the flip side, there is also a possibility that it might go up if market sentiment changes.

ECONOMIC CALENDAR