Morning Minutes 3/24/2020

Morning Minutes

Gold, Stocks and Commodities Rally Amid a Flurry of Developments

March 24, 2020

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

Stocks and commodities around the world have surged upward overnight. A number of signs suggesting that there could be a light at the end of the coronavirus lockdown tunnel for some countries has started to ease investor fear and uncertainty over how long the economic slowdown could last and how deep could it be. Overnight developments include:

  • China continues to come out the other side of this with announcements of schools and movie theatres reopening and reports the lockdown of initial epicenter Wuhan City may be ending after about two months.
  • The growth rate of COVID-19 cases in Italy has now been declining for 2-4 consecutive days, depending on the source.
  • US politicians may not have passed a stimulus package yet but they are still talking amid reports something could potentially get done soon. President Trump meanwhile, indicated in a press conference that the shutdowns are expected to be temporary, suggesting “weeks, not months” in duration.
  • European markets did not respond to negative economic news, suggesting that investor expectations for a big slowdown in economic activity has been priced in. Flash PMI reports for Europe are out this morning and were mixed with the service side being impacted more than manufacturing. For example German flash PMI numbers were: Manufacturing 45.7 vs street 39.6, Service 34.5 vs street 42.3.

Some of the bigger clouds overhanging world markets and investor confidence have been uncertainty over how long could the coronavirus impact on the economy last, how bad could it become, and are governments or central banks doing enough to fight this crisis?

Yesterday’s huge intraday swings in both directions indicate that we are by no means out of the woods or even close to it and sentiment could continue to turn on a dime through today and through the days to come, but for the moment investors appear to be starting to anticipate a time when fear recedes and fiscal/monetary stimulus kicks in. The reaction (or lack of one) to US flash PMI reports which are due at 10:00 am EDT may indicate whether investors remain focused on the current slowdown or are starting to look past it. The street is expecting US Markit flash Manufacturing PMI to come in a 42.8 down from 50.7 last month and Markit flash Service PMI to drop to 42.0 from 49.4. Progress (or lack of progress) toward a US fiscal stimulus package could also potentially spark swings in the markets today.

US index futures hit limit up overnight with gains of about 5% at one point. Dow futures are currently up about 736 points or 4.0%. Overseas markets have been surging. In Europe, Frankfurt is up 6.0%, Milan is up 5.2% while London and Paris are both up about 4.2%. In Asia Pacific trading, Seoul soared 8.6%, while Tokyo climbed 7.1% and Sydney plus Hong Kong gained about 4.2%. In commodity trading, WTI crude oil is up 3.0% trading near $24.00/bbl while copper is up 3.8%

Gold is having a big day today, soaring 6.4% against the US Dollar toward $1,665/oz. The combination of a recent rush of cash into the US Dollar easing overnight (greenback is down 1.4% vs the Pound, down 1.0% against the Euro, down 0.25% against the Yen, up 0.1% against the Loonie, and speculation that new monetary stimulus could depress paper money relative to hard assets appears to have ignited renewed interest in the yellow metal.

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